USD/JPY Risk Reversal: Friday’s post-NFP rally has legs

The Dollar-Yen pair staged a solid rally on Friday from near 100.00 levels to an intraday high of 111.05 levels after the non-farm payrolls data bettered estimates, while the wage growth numbers ticked higher in July as expected. 

When viewed on the technical charts, the Friday’s rally looks more of a technical correction; however, risk reversals signal the rally has legs. 

• The chart above shows the one-month 25 delta risk reversal ticked higher to -1.038 from Thursday’s level of -1.288. Friday’s print was highest since June 27. 
• Rise in the risk reversal signal reduced demand for downside protection i.e. put options.