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The battle lines are drawn in USD/JPY


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Higher yields provide a lift

It’s all about the US and China this week and USD/JPY is no different. The pair fell to the lowest since March 25 today and dipped below 110.00.
However in the past hour it’s shown some life in a rebound to 110.14, canceling most of today’s loss. The bounce came after a surprisingly weak Treasury auction pushed US yields higher. One theory is that China boycotted the sale to send a message to the US and that’s not exactly comforting.
Technically, it’s all about the March low of 109.70 at this point. Until there is a negative indication on China-US talks, I don’t anticipate a break. But if they fall apart, we could be talking about a sharp fall. 107.50 would be in play and a fall to the flash crash lows can’t be ruled out.

On the upside, a China-US dear would put it on the path back to 112.40 while more talks would keep it locked in this rage.

Normally the trade would be to buy near here with a tight stop but you risk getting caught out in a gap, especially as the weekend draws near.

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