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USD/JPY slides below the 111 handle in Tokyo, but 55 DMA is key

  • USD/JPY drops below the 111 handle Tokyo's open, looking for another test of the 55-DMA at 110.72.
  • Big IMM net spec long position is a risk on a break of the 55-DMA.
  • US CPI is going to be key in the US session, but any dollar weakness may only be temporary on central bank divergence in favour of the dollar. 

USD/JPY is sinking in the Tokyo open and has broken back below the 11 handle to mark a low of 110.88 so far. USD/JPY was attempting a bullish correction overnight but the yen is being bought back as the long EM and commodity-FX trade that is funded by the yen are covered. 

Greenback mostly higher to fresh 2018 closing high

The greenback was mostly higher on Thursday in the European and US markets, a move sparked by yesterday's uber-dovish RBNZ and geopolitical tensions between the Trump administration, Turkey and Russia. The DXY climbed -0.43% to 95.6210 from the depths of the 95 handle and made a fresh 2018 high close - the pull back to below 95.20 this week caught out the less committed bulls. The US 10yr treasury yields dropped from 2.96% to 2.93% and the 2yr yields slipped down from 2.67% to 2.65% while the Fed fund futures yields slid a touch, now pricing around 40bp of tightening by close of play this year.  Another slight plus for the yen comes with Japan Q2 preliminary GDP 0.5% q/q vs.the expected +0.3% - something that underpins the opinion that the BoJ does not need to be so lose. 

Key notes:

  • US: Headline CPI to hold steady at 2.9% y/y in July - TD Securities
  • Atlanta Fed: GDPNow estimate for real GDP growth in Q3 ticks down to 4.3%
  • Fed's Evans: One or two more rate increases 'reasonable' by end of year.
  • Telecom lifts Nasdaq, Dow and S&P close with modest losses

USD/JPY levels

Valeria Bednarik, chief analyst at FXStreet notes that the 4 hours chart shows that the 100 SMA continues heading south above the current level and above the 200 SMA, indicating an increasing downward potential without confirming it:

"Technical indicators in the mentioned chart have recovered from their daily lows, but are unable to define a direction, hovering right below their midlines. US inflation could be a make it or break it for bears, who can't seem to be able to fully take over the pair."

Japan GDP clears estimates as growth rebounds despite sluggish inflation

Japan's GDP largely came in better than expected, and the first quarter's GDP contraction has seen a healthy rebound in 2018's second quarter. Season
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USD/CNY fix projection: 6.8429 - Nomura

Analysts at Nomura offered their model's projection for today's fix in USD/CNY. Key Quotes: "Our model1 projects the fix to be 112 pips higher than
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