USD/JPY risk reversal: Sellers in control

USD/JPY fell to a low of 108.64 yesterday on broad based USD weakness before ending the day at 108.96 levels. The spot did fail to close below the Aug 11 low of 108.71 for the second day; however, the risk reversal suggests the support is eventually likely to give way for more losses.

One-month 25-delta risk reversal

• The one-month 25-delta risk reversal fell to -1.6 on Monday from Friday’s print of -1.475 as the spot fell from 109.17 to 108.96. 
• The decline in the risk reversal indicates increased demand for Put options and adds credence to drop in the USD/JPY pair. 
• The Dollar-Yen could extend losses in the coming sessions as suggested by the risk reversal, although techies are likely to wait for an end of the day close below 108.71 before betting on further losses.