Dollar shorts versus the Japanese yen are under severe pressure as Chinese PMI, U.S. data bring some cheer to investors worried about the surge in coronavirus casesnL4N2E7032.
In times of improved risk appetite, funds usually flow out of the safe-haven yen, putting the short USD/JPY position under threat and exposing the 108 level above.
The USD/JPY speculative short position has grown, according to IMM data -- the week ending June 23 showed a futures market short an equivalent cash USD/JPY position of $3.22 billion, up from $2.58 billion the previous week.
EBS flow data since June 23 shows USD/JPY shorts may have grown even more.
USD/JPY buy stops associated with the growing speculative short could spark an even bigger squeeze higher.
USD/JPY has risen within the thickening daily Ichimoku cloud that now spans the 107.23-108.43 region.
Monday's break and daily close above the 107.52 Fibonacci level, a 38.2% retrace of the 109.85 to 106.08 June EBS drop, strengthens the outlook and puts the cloud top in play.
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