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  • USD/JPY bears on the move attacking the 111 handle.
  • USD/JPY is technically poised to extend its decline.

USD/JPY is on the move in Asia and Tokyo has pushed it higher to test the 111 psychological level with a low of 110.85 so far from a high of 111.51.

USD/JPY has been dropping, following the move that started last week following Trump’s comments on CNBC that have sparked an unwinding in the dollar.  The DXY has dropped all the way back to 94.2810 from close to 95.31 earlier in the month.  

However, there is a decoupling of US yields and the dollar where 10yr treasury yields rose from 2.84% to 2.89% on Friday -to the highest in a month and the 2yr yields also climbed and from 2.59% to 2.60% while the Fed fund futures yields continued to price 1 ½ more hikes in 2018.

Trump going to currency wars?

It would appear that while Trump is unable to demand the Fed to keep rates on hold, the rhetoric has heightened the trade war risk and put the dollar into question, raising the suspicion that the Trump administration will spark a full on currency war.   However, in this weekend’s G20, there was a clear motion between delegates that reaffirmed exchange rate commitments made in the March statement to avoid competitive devaluations and refrain from targeting exchange rates for competitive advantage

Meanwhile, the week ahead will get interesting in the US with Q2 GDP as the highlight on Friday. “July existing home sales have been soft of late, with the NAR attributing it to a lack of supply,” analysts at Westpac explained.  

USD/JPY levels

From a technical perspective, Valeria Bednarik, chief analyst at FXStreet explained that the pair settled at the 61.8% retracement of its latest daily advance between 110.34 and the mentioned 113.17, and is technically poised to extend its decline, as in the daily chart, technical indicators retreated from overbought readings, heading south almost vertically and nearing their midlines:

“The 100 DMA in the mentioned chart advances below the 200 DMA, both in the 109.50/60 region. In the 4 hours chart, the pair closed a few pips below the 100 SMA, the first time below it in almost a month, while technical indicators pared their declines in oversold territory, with the RSI still heading lower at 26, suggesting that buyers remain sidelined despite the latest 200 pips’ slump.”