USD/JPY near-term vulnerability to decline  - Scotiabank

Eric Theoret, Strategist at Scotiabank notes that they see near-term vulnerability to a JPY rally (USD/JPY decline).

Key Quotes

“JPY is flat, underperforming all of the G10 currencies with the exception of AUD. Relative central bank policy is in focus as market participants assess the outlook for the BoJ following its first (post September 21) fixed-rate operation in which it announced an intention to buy unlimited amounts of 2Y and 5Y bonds at –9bpts and –4bpts, respectively. No bids were received however the announcement had a notable impact, pushing yields down across the curve with the 10Y yield softening back toward 0. Yield spreads remain well off their extended levels from Monday and risk reversals suggest a steady, marginal rise in the premium for protection against JPY strength. We see near-term vulnerability to a JPY rally (USDJPY decline).”

“USDJPY short-term technicals: vulnerable to decline—momentum signals have stalled in overbought territory and the formation of two consecutive doji’s is a sign of elevated uncertainty. Near-term resistance is expected above 109.50 and we highlight the potential for weakness below 108.50.”