Capitulation by IMM specs that held a net long USD/JPY position worth $11.4 bln as of last Tuesday is likely speeding the pair’s slide to multi-month lows amid the developing equity market rout and bond yield tumble.
What began as general anxiety that the U.S.-led trade war would slow global growth and temper Fed hikes, has turned into a year-end, global de-risking event that has the potential to trigger a USD/JPY slide along the lines of the 8 percent-plus drops begun in Dec 2016 and Dec 2017.
The current financial asset deflation trend has already reduced the amount of Fed funds hikes priced-in over the next 12 months to 33bp from 68bp in October.
And this with some risk of rate cuts priced in beyond that as inversion of the 2-10 year yield curve looms.
Including today's current 112.23 low, USD/JPY has traded below its 100-DMA on an intraday basis six times since May, but has not closed below it.
A close below it, last at 112.25 (EBS), would target the uptrend line from May/weekly kijun, October's low and the 200-DMA at 111.90/38/10.56 next.
A close above it, however, can give longs hope for a bounce.