USD/JPY flirts with 107.00 handle, risk reversals shed JPY call bias

• Risk reversals show demand for JPY calls (bullish bets) is falling.
• Eyes Powell testimony

The USD/JPY pair's recovery from 106.38 yesterday has left a higher low on the daily chart, indicating a short-term bottom has been made at 105.55 (Feb. 16 low).

Further, the one-month 25 delta risk reversals (JPY1MRR) gauge indicates falling demand for JPY calls (buy Yen). As of writing, the risk reversals are being paid at 1.4 JPY calls vs. 2.4 JPY calls seen on Feb. 12. The drop in the JPY volatility premium (from 2.4 to 1.4) indicates JPY bullish bias has weakened.

The technical setup and the activity in the options market clearly indicate the investors believe the new Fed chair Jerome Powell will remain measured in his first testimony (due later today). 

USD/JPY Technical Levels

A convincing move above 107.09 (100-hour MA) would open up upside towards 107.91 (Feb. 21 high + descending trendline drawn from the Jan. 8 high and Feb. 2 high). A violation there would expose 108.28 (Jan. 26 low).

On the downside, breach of support at 106.38 (Feb. 26 low) could yield a sell-off to 106.03 (Feb. 15 low) and105.55 (recent low).