USD/JPY fell from yet another 20-year high of 129.43 on EBS to correct a small portion of its exceptionally overbought condition.
Traders must now assess how much further Treasury-JGB yields spreads can rise now that shorter-term U.S. yields are already well above the Fed's neutral level, and whether Japanese policy makers will eventually take tangible steps to support the yen nL2N2WI0VM.
USD/JPY's pullback is partly tied to 10-year Treasury yields nearly reaching 3% on Tuesday, causing shorts to take some profits and real money to bid, driving the yield down more than 10bps from the high.
And because JGB yields barely move due to the BOJ's suffocating yield curve control policy capping 10-year yields at 25 bps, the drop in Treasury yields tightened the Treasury-JGB yield spreads.
Prices remain above Tuesday's on-close pivot point low, the uptrend line from March and the 10-day moving average at 126.98/44/07.
With monthly RSIs their most overbought since 2014's peak, and IMM specs their most net long since 2018, there's potential for a bigger retreat if prices close below the support.
A bearish reaction to Wednesday's beige book release and Fed speakers nW1N2VB043 is needed to signal a broader correction, and delay a run at the pivotal 130 level.
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