USD/JPY received relief from the week-long plunge that pushed it 2.5 percent lower to Thursday's 110.81 trough, but that will be a temporary reprieve as anxieties ranging from a tone-deaf Fed to trade tensions gnaw away at market confidence. The 200-DMA and two longer-term Fibo levels, now at 110.73-91, helped stall USD/JPY's fall -- as did more than $8bln in expiries between 111 and 112 that disappeared with today's cut. That leaves U.S.-China frictions, with trade talks resuming in January in the shadow of U.S. indictments of Chinese nationals on cyber-hacking charges nL3N1YQ15U -- and China's denials.
Then there's the financial markets selloff exacerbated by fears of a Fed policy error, broadening signs of weaker global growth, Brexit and a sudden spike in U.S. strategic unpredictability nL1N1YQ01V. All this boosts safe-haven flows into the yen and U.S. Treasuries, which undermines the dollar's yield advantage.
Limited JGB yield latitude due to BOJ policies means Treasury yields drive USD/JPY.
Selling a bounce in USD/JPY or a break of 110.73, 38.2 percent Fib of this year's range, should see the 50 percent Fib and monthly cloud top at 109.55/65 tested next, with broader risk down to 104.56.