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  • Despite US yields at the highest levels since May 2011, USD/JPY has broken to the downside in thin liquidity – (Higher yields, Fed rate hikes are not bullish for stocks).
  • 113 the figure has just been pierced and the DXY trading at 95.83 is trending on thin ice as it approaches a key trend line support at 95.70 and 2nd Oct spinning top (reversal/correction chart pattern).  

The yen  is firmer across the board as China returns and tumbles with the  central bank’s move to aid economy being shrugged off and the CNH dropping to the lowest levels since mid-August. This has sparked some risk-off play in markets with US  indexes in the red. Similarly, Italy continues to weigh on investor sentiment and we had seen the biggest hourly drop in the yen since July where heavy yen selling  accelerated across  London through the  113.42 Fibo (23.6% 109.78-114.55).  

“The enemies of Europe are those sealed in the bunker of Brussels,” Matteo Salvini Italian Deputy Prime Minister. Is this a reference to the most famous bunker in European history?    When Brussels speaks Italians are likely to hear the voice of Berlin. Germany needs to tread lightly. As the American novelist William Faulkner said.  “The past is never dead. It’s not even past.”  Rome and Brussels should be careful that a dispute over budgets does not become a question about the European Project. It is a delicate moment in history,”  

Joseph Trevisani, Senior Analyst at FXStreet wrote.  

Meanwhile, on pure positioning alone, it is no surprise of the depth of this unwind. “Net  JPY  short positions powered higher last week, returning to their highest level since January.  The weaker  JPY  was correlated with the better tone in the Nikkei 225 although the recent gains in the latter are being driven by defensive stocks rather than exporters,” analysts at Rabobank noted.  

USD/JPY levels

To the downside, the pair is now printing a low of 112.93 on a massive long speculative squeeze taking out the non-committed  bulls and a 50% retracement of the 20th Aug – recent double top highs  is  targetting 112.14.  

“We look for dips lower to be contained by the 111.83/58 late August high and 55 day moving average. Uptrend support lies at 111.40. Above 114.74 would target 118.66, the December 2016 high,” analysts at Commerzbank explained.