- Stuck in 106.00-106.40 range.
- Risk reversals retrace JPY call bias.
USD/JPY has been restricted to a narrow range of 106.00-106.40 since Friday’s late NY trading and the risk reversals indicate the range could be breached on the higher side.
As of writing, the spot is trading at 106.23, having clocked a high of 106.37 and a low of 106.10. The pair hit a low of 105.55 on Friday before moving back above 106.00 on chart factors (oversold conditions). Also, the options market indicates the premium held by JPY calls (bullish bets) over JPY puts has dropped over the last few days.
The one-month 25 delta risk reversals are being paid at JPY 2.025 calls vs. JPY 2.425 calls on Feb. 12. Also, weekly risk reversals are being paid at JPY 1.53 calls vs. JPY 2.50 calls. The decline in demand for JPY calls (as highlighted by the drop in premium) could be an indication the investors are expecting a corrective rally in the USD/JPY spot.
So, the 40-pip trading range could end with an upside break. That said, the fears of a full-blown trade war between the US and China could keep Yen losses under the check.
USD/JPY Technical Levels
Chief Analyst Valeria Bednarik believes it is too early to call a bottom. Bednarik writes, “the pair maintains its bearish bias according to technical readings in the daily chart, as the price continues moving away from its 100 and 200 DMAs, both over 500 pips above the current level. The Momentum indicator in the mentioned chart heads south near oversold territory, while the RSI indicator consolidates at 27. In the 4 hours chart, moving averages accelerated their downward moves far above the current level, while technical indicators have managed to bounce from oversold readings, but remain well into negative territory.”
Support levels: 106.15 105.70 105.40
Resistance levels: 106.85 107.20 107.60