USD/JPY: Off 3.5-week highs, JPY call value hits 23-day low

• USD/JPY has backed off from the 3.5-week high clocked yesterday, but the path of least resistance remains on the higher side.
• The value of the out of the money JPY call options continues to drop, now trading at the 23-day low.

Currently, the USD/JPY pair is trading at 111.62, having printed 111.83 yesterday - the highest level since Aug. 3.

The pullback from the multi-week highs is likely associated with the overbought conditions reported by the relative strength index (RSI) on the hourly and 4-hour chart. A 0.10 percent decline in the S&P 500 futures may have also weighed over the USD/JPY pair.

However, the path of the least resistance is still on the higher side as indicated by the higher highs and higher lows pattern on the daily chart.

Further, the implied volatility or demand for the JPY call options (bullish bets) has hit a 23-day low, which indicates the investors are likely expecting the USD/JPY further.

The USD/JPY one-month 25 delta risk reversals (JPY1MRR) are being at -1.05 JPY calls, the highest level since Aug. 7. Negative risk reversals indicate the implied volatility (or demand) for the JPY call options is higher than that for the JPY puts.

USD/JPY Technical Levels

Resistance: 111.83 (previous day's high), 112.15 (Aug. 1 high), 112.37 (76.4% Fib R of 113.18/109.77)

Support: 111.36 (5-day MA), 110.94 (10-day MA), 110.59 (July 26 low)

JPY1MRR