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Moves in USD/JPY continue to dictate sentiment in the FX space and, after topping out at ¥118.98 in US trade, the pair have since pulled back below ¥118.00 with losses accelerating in Asian trade. Comments by Finance Minister Aso have suggested he’s surprised by the rapid yen depreciation, which have been pinned as the key driver of the sharp pullback.
However, this is nothing new and we’ve heard Aso make similar comments in the past. Given today is the day when Abe dissolves the lower house, rhetoric is likely to ramp up in coming sessions. As a result, I feel this pullback in the pair is quite timely and presents opportunities for traders who missed out on previous longs.
Weakness in the pair is likely to be used as an opportunity to buy as the election campaign gets underway. The pair had been significantly overbought and the RSI looks like it could dip below 70. A key level to look out for will be ¥115.75 – the point at which the 23.60% retracement of the October-to-November rally kicks in.