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What about the yen? - BBH

FXStreet (Guatemala) - Analysts at Brown Brothers Harriman noted that the dollar was in a defined traded range against the yen from late-August through early-November, between JPY118.00 and almost JPY122.00.

Key Quotes:

"Three-month implied volatility remained firm, above 10%, which was the upper end of the range from March through the first three weeks of August. It then trended lower, hitting 8%, a three-month low in early November. Volatility has firmed but remains relatively soft near 8.7%.

While implied euro volatility is above its 50, 100, and 200-day moving average, implied yen vol is below similar moving average. In the spot market, the dollar is above the same moving averages. The subdued response to the break out in dollar-yen suggest many operators may not be exceptionally bearish the yen.

Three-month dollar calls against the yen were at a 1.4% discount to puts (equidistant from the money) in early September. The discount turned into a premium in late-October and reached a high near 0.30% after the US employment data. It has trended lower since. The three-month dollar calls are again at a discount to puts (-0.20%).

The general trend has been for dollar call discount to be reduced while volatility has eased. Until the early part of last week, this would have been consistent with participants selling dollar puts. In the futures market, the net short speculative position was dramatically unwound. In the middle of August, speculators were net short more than 100k yen future contracts. By the end of October, this had been reduced to only about 3640 contracts.

The dollar posted lower highs and lower lows almost every session last week. However, on the pullback the dollar held the 38.2% retracement of this month's gains and today, it is posting an outside up day. Initially, the dollar fell through the pre-weekend low on safe haven idea.

It has since recovered fully to trade above last Friday's high. A close above that high, near JPY123.00, is needed to confirm the positive technical signal. Meanwhile the the three-month risk-reversal is drifting lower. It appears that new demand for dollar puts are being bought. Here too the options market insurance characteristic is stronger than its function as a parallel market."

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