FX traders have been reasonably comfortable holding USD/JPY, since its technical outlook shows scope for a much bigger medium-term bullish cycle, which is likely to drag EUR/JPY higher also.
USD/JPY's speculative long position has grown, according to IMM data -- the week ending March 30 showed a futures market long an equivalent cash USD/JPY position of $6.7 billion, up from $6.2 billion the previous week.
EBS flow data since March 30 indicate some of those USD/JPY longs may have been exited.
USD/JPY climbed to a one-year high at 110.97 last week amid a spike in Treasury yields, as accelerating vaccinations and massive stimulus in the U.S. stoked inflation concerns.
However, defence of 111.00 option barriers and profit-taking has caused a short-term setback.
While USD/JPY remains above previous 109.56 Fibonacci resistance, a 76.4% retrace of the 111.71 to 102.60 (March 2020 to January 2021) EBS drop, the overall bias is for bigger gains to the March 2020 111.71 high in the weeks ahead.
If the market falters below 109.56, however, that would be a sign that medium-term gains are coming to an end.
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