USD/JPY broke to the 110.50 key support, more downside from Tokyo open?

Currently, USD/JPY is trading at 110.90, up 0.06% on the day, having posted a daily high at 110.96 and low at 110.53.

• Forex today: a rough ride and a reality check for dollar bulls in a spooked market

As per the previous article in USD/JPY, (US yields down a huge 4.44%: USD/JPY headed to 110.50 on stops breaking sooner than later?) 110.50 to the downside was tested.

This area is 61.8% fibo of the 108-114 move and a strong level of support from where some of the pain is being absorbed. Demand is back towards the resistance level where previous support and stops gave in. It is early trade here in Asia and there should be little, willing, activity until the Tokyo open given the dramatic market behaviours overnight. 

• Wall Street sinks as political controversy frightens investors

As per the previous article, yields and the spooked market has driven a risk-off environment supporting a flight to the yen. So long as the headlines keep coming, the political risk-off trade remains in place. Wall Street was a blood bath and Global stocks tend to follow suit across the opens. A negative open in Tokyo will likely push this barrier in the yen unless the markets decide the dollar is cheap on expectations of the Fed hiking rates in coming months.

However, with Kuroda's recent hawkish commentary serving a slight rise in yields this week, a narrowing of the spread from overnight trade where US 10-years dropped like a stone by 5%, a meaningful fall indeed, the dollar might be seen as fair value considering the current climate. Crucially, the Fed fund futures yields also fell, pricing a June rate hike as a 70% chance (from 85% yesterday) while Group FedWatch's odds of June hike fell to as low as 64.6%. Eyes will be on Japan's GDP and Aussie jobs. 

Economic wrap and Aussie jobs ahead - Westpac

USD/JPY levels

For further downside levels, Valeria Bednarik, chief analyst at FXStreet called that a break below April's 26th low (110.80) will be exposing 109.90 today, the 50% retracement of the November/December rally. Further, offers below 108.13 will target 107.50 July 2016 high and possibly 106.85, the 61.8% retracement, according to analysts at Commerzbank, "this is is not our favoured scenario. We regard 108.13 as a key low in place." However, should 110.50 hold, a phase of consolidation could be in play between there and 111.35 (200 day smoothed sma).

Where could the next opportunity be? Further suggested reading:

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