USD/JPY, EUR/USD flows: dollar remains off balance, prone to pressure

Long end bonds remain at the post ‘intervention’ levels with US30s broadly unchanged at 5.19%, some 15bp off the week’s highs, JGB 30s back down to around 4%, similarly off the highs. Risk remains bolstered, with Kospi regaining around 6%. Fed Minutes didn’t really add a huge amount, underscoring that policy might need to tighten if mi9nfaltion did not fall back but not renewing Sep hike expectations, leaving short end yields slightly off.

The bigger question is how much the action has taken a lasting chunk off the dollar. EUR/USD holds to the 1.1680~ highs, slowing as it approaches resistance at the 1.1685/1.1700 area. Above 1.1700 level will see room to strong resistance at the 1.1750/65 area and the 1.1800 level. USD/JPYY remains complicated by the two-way pull (initially off with the dollar and yields, but then supported by higher risk markets) keeping the 2-week range above the 158~ key level intact, but with supply at 158.50-159 and more pressure on the downside than upside on any further wave of broad dollar selling. 

With Iran still stuck in standoff (Trump threatening economic consequences for any country dealing with Iran and offering it a lifeline), nor near-term change in the fiscal or inflation risk picture, one question for coming days and weeks is whether the bond vigilantes accept the gift, or instead start to test the latest US intervention to pressure further response. The ultimate irony would be if a Warsh-Fed (anti balance sheet and market intervention) got dragged into the story.  If so, that would be a cycle that could prove more dollar negative.