USD/JPY - Selling On Strength Favored As Risk Deteriorates

Once again, the pair saw a vigorous rejection away from a key area of support circa 112.20-30. The correlations continue to provide with clear selling signals as both the risk profile and the US vs JP yield spread keep deteriorating dramatically, suggesting a fair value of sub 110.00 in USD/JPY.

The absorption out of the daily chart is notable, but with sellers still drawing the line in the sand at the topside of the hourly range around 112.60, they remain the clear side in control. Selling on strength at key liquidity areas continues to be a strategy that should keep sellers ‘on the money’ as long as the divergence in valuations remain as clear as they are. If the follow through doesn’t abate, 112.00 and 111.80 are the next objectives to aim for by sellers. Overall, the market still remains in gamma scalping mode judging by the impl vs hist vols, so be aware of fading moves at the edges.