USD/JPY limited resistance ahead of 105.27  - Scotiabank

Eric Theoret, Strategist at Scotiabank said they are biased to USD/JPY gains, with limited resistance ahead of July 29 open at 105.27.

Key quotes

“JPY is weak and underperforming most of the G10 currencies in an environment of broad-based USD strength. JPY is testing fresh lows at levels last seen in early August, with risk of further weakness and a retracement of the BoJ-driven rally from July 29.”

“The firming in Fed expectations is pressuring JPY, widening the U.S.-Japan 2Y yield spread beyond 100bpts toward levels last seen in late July. Domestic risks are compounding the weakness from relative policy on fresh interventionist rhetoric from PM Abe’s adviser Hamada, and measures of sentiment are delivering added pressure as risk reversals suggest a steady moderation in the premium for protection against JPY strength. Shorter-term measures are even pricing a small premium for protection against JPY weakness. We are biased to USD/JPY gains (JPY weakness)”

“We note the breach of the July 29 close (102.06) and see limited resistance ahead of the July 29 open (105.27).”