USD/JPY: slices through 109, breaks 110 and now takes on 110.50 in Tokyo

Currently, USD/JPY is trading at 110.53, up 0.26% on the day, having posted a daily high at 110.56 and low at 110.18.

USD/JPY is up to challenge the 111.50 level as the dollar continues to pick up the bid, rallying from 108.26 lows and slicing through the 109 handle like butter overnight, with a minor hold up at 109.80. The break of the 110 handle is significant and closes above it could well be the foundation for a reversal. 

Forex today: start of the dollar's shorts capitulation?

The GDP data for Q2 that rose 3.0% annualized vs 2.7% expected, and 2.6% previous in its second estimate. Revisions to GDP contributions were also healthy.  

Key US data was strong overnight - ANZ

The ADP private sector employment was an additional positive that rose 237k in August vs 185k expected and hardens expectations of a "Goldilocks" nonfarm payrolls report at the end of the week from the US.

The strong data overnight has raised expectations that the Fed may well start to reduce its balance sheet as early as next month and the month end flows have scrambled to the dollar, positioning back into riskier assets, borrowing and then selling the yen as a funding currency. 

USD/JPY levels

"The lower shadow of Tuesday’s candle is impressive, implying considerable support in the lower-109 to lower-108 area," noted analysts at Scotiabank, adding, "USDJPY has broken above both its short-term MA’s and appears set to push back toward its mid-August high around 111 with risk to the 50 day MA at 111.20."

Meanwhile, Valeria Bednarik, chief analyst at FXStreet explained that the August 16th high at 110.94 is the next big resistance, with an extension beyond this last opening doors for a steeper advance.