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  • In a quiet start to the week, USD/JPY is trading close to Friday’s closing prices, travelling between 111.90/98 so far here in Tokyo, up from the early Asian session low of 111.80.
  • USD/JPY cracked the key support on Friday, falling from the 112.20’s into the 111.30’s. As US stocks tumble in fresh global de-risking.  

USD/JPY broke a key support on Friday which was a Fibo target that met the 100DMA and cloud at 111.40/60. The picked up the safe haven flows. However, risk rebounded as yields slid lower after the US GDP data beat expectations showing that the economy is in strong form, with a 3.5% annualised gain in the three months to September following the June quarter’s 4.2% rise – (For the year to date, growth is currently running at a 3.3% annualised pace, close to twice potential). However, there is a sense that the headline number looked much stronger than it really is given the massive inventory adjustment contributing 2.07% to the headline number while Government spending was also on the high side, contributing 0.56 percentage points and that weighed on the greenback and also made for a pullback in the Fed’s funds pricing.

  • US GDP Beats Forecast but Markets Unimpressed

Stocks in midst of one of their biggest  selloffs in years

Stocks had a poor day again on Friday and  The Wall Street Journal reported that it was a powerful slump in technology and internet stocks that is putting the S&P 500 in danger of joining the Nasdaq Composite in correction territory as investors continued an October retreat from risky assets.

“U.S. stocks are in the midst of one of their biggest selloffs in years, sparked by worries about the impact of tariffs on U.S. company earnings, as well as whether a slowdown in China and Europe growth could spill over into the U.S. economy. Fast-growing internet and tech firms have been some of the hardest hit stocks during the market turmoil of the past few weeks, with the tech-heavy Nasdaq Composite on track for its worst month since 2008.”

We have the BoJ this week, but there were few changes on the side effects from monetary easing in October’s 2018 Financial System Report, and analysts at Nomura do not expect a change in monetary policy at the BOJ’s meeting. On the Japanese economy, the analysts note that the recovery in economic activity is still rolling on, but with weaker momentum than before:

  • “We expect core CPI inflation to remain below the targeted 2% level, though a gradual acceleration is likely for a while.
  • We expect the current YCC policy to remain untouched in the longer run, with some adjustments enhancing sustainability.
  •  The risk is renewed yen appreciation caused by concerns over a global recession and US protectionism.”

USD/JPY levels

  • Support levels: 111.55 111.10 110.85  
  • Resistance levels: 112.10 112.45 112.90  

Valeria Bednarik, chief analyst at FXStreet explained that the daily chart for the  USD/JPY  pair shows that it briefly pierced its 100 DMA but finally settled above it:

“Technical  indicators  remain  within negative levels and heading lower, leaning the scale toward the downside for the upcoming sessions. In the shorter term, and according to the 4 hours chart, the pair is firmly bearish, developing some 100 pips below its 100 and 200 SMA and with the shortest crossing below the larger one, and technical indicators heading south near Friday’s lows. Renewed selling interest below the 100 DMA, currently at 111.55, should  favor  a bearish extension to fresh monthly lows near the 110.85  region.”