USD/JPY has this morning broken below its pivotal 200-day MA level at 101.70, notes BNP Paribas.
“USD/JPY has a history of initiating false breaks below the 200 dma so it may be wise to wait before assuming this break is for real,” BNP warns.
“It is difficult to argue for USDJPY to move lower still. Japanese CPI data was in line with expectations showing a strong reading for May (+3.7% yy) while the forward-looking Tokyo CPI reading for June was also inline at +3.0 y/y. The real surprise was the sharp decline in household spending at – 8.0% (y/y) – a multi-year low. This latter miss likely explains the sharp fall in the Nikkei 225 Index too and the fall in USDJPY which tends to follow the Nikkei closely,” BNP argues.
“Our BNP Paribas Positioning analysis indicates that investors have again been caught wrong footed with a sizeable increase in JPY short positions to -17 (on a scale of +50 to -50). See chart below. Given the very negative real yields available on JGB investment now for Japanese investors, it is no surprise that demand for foreign bonds has set a new high as we flagged yesterday,”BNP adds.
BNP stays long USD/JPY with a 105.50 target.
