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  • USD/JPY has caught the bulls wrong-footed and made a firm squeeze to the downside below the 114 handle and hit a low of 112.82.
  • USD/JPY suffered as markets turn risk off with  the contagion of Chinese equities spreading throughout  Europe and the US, adding to the heightened risks associated with a clash  between Italy and the EU, trade wars, Brexit, EMs and the  European banking sector.  

The yen has picked up its safe haven bid again and there is growing angst surrounding the Chinese / US standoff.  US yields would usually support the case for higher USD/JPY, although at this moment in time not committed bulls have bailed on the risk-off spike to the downside while repatriation flows back into  Japan may also have been in play. EM-FX is also back in vogue in terms of  Fed  rate hikes.  

Fed hikes a concern to markets

The US Treasury market was closed for the US holiday but futures traded, implying a pullback in yields from 3.25% to 3.21% and the Fed fund futures yields continued to price the chance of another rate hike in December at 80%. US CPI is up this week and it will be interesting to see what the take is on a better than expected outcome. Higher rates and Fed hike prospects seem to be to the detriment of this pair at the moment – Should  equities continue to bleed, the yen may well remain firm.

 USD/JPY levels

Next supports are the September 27 low and daily Kijun at 112.56/47, but the 100-DMA, last at 111.18, is key.  Meanwhile,  Valeria Bednarik, chief analyst at FXStreet explained that the 4 hours  chart  for the pair shows that it broke below its 100 SMA, below the indicator for the first time since September 10:

“The Momentum indicator in the mentioned chart has bounced modestly from oversold levels, but the RSI continues heading lower, currently at around 27, keeping the risk skewed to the downside. The movement remains corrective according to technical readings in bigger time frames, but that doesn’t deny the possibility of a downward extension toward 112.00 if the pair doesn’t recover quickly back above the 113.00 mark.”