USD/JPY: bears eye a break down to 108.90 Fibonacci retracement

USD/JPY finally broke down through the 110 handle overnight making a low of 109.88 as Tokyo got going on a break of supports at 110.15, 110.00 despite a dovish BoJ at the start of the week. Currently, USD/JPY is trading at 109.21, down -1.00% on the day, having posted a daily high at 110.35 and low at 109.15.

The greenback had been weighed by lower yields in the NY session on a relief rally in Treasuries as investors cheered the temporary deal to reopen the government today, passing a three-week continuing resolution (CR) that extends the government’s spending authority through 8 February.

Dollar bears dancing on USD/JPY's grave

DXY has dropped and extended its three-year lows trading within a range of between 89.2320-90.1130 so far today, (US 10-yields are elevated still at 2.66% at the time of writing between a range of  2.61%-2.66%).

US Dollar accelerates the downside to 89.40

However, the bearish dollar plot thickens and USD/JPY bears rejoice in not only the Japanese Manufacturing PMI that was up m-m in January 2018 to the highest level since Feb 2014, (headline Japanese manufacturing PMI for January 2018 came in at 54.4, up from 54.0 in December 2017, and the highest it has been since February 2014), but, U.S. Treasury's Mnuchin crossed the wires saying that a weak USD good for trade. this followed the Nikkei being on the back foot after a weaker performance on Wall Street in NY sending USD/JPY lower as well, all leading to a break down of 109.55 (the retracement low from September 15th).

Moreover, in respect to trade negotiations and Tumps firm hand, a measured response from Asia could lead to an escalation of tensions could support the Japanese Yen on a risk-off scenario as the US take on China, South Korea and Japan.

USD/JPY levels

USD/JPY has made a low of 109.15 and is now trading the vicinity of large option expiries between 109.50-60 of USD604m and 109.20 USD532m. With a drop and a close below the bottom of a short-term channel at 109.60, eyes are looking towards the 108.90 Fibonacci retracement target as the last defence for a move towards 107.45  as the 2012-2018 uptrend.