USD/JPY: no chances of a breakout, but if there is?

  • Watch sell stops below 111 handle.
  • Spreads appear somewhat vulnerable.

USD/JPY is quiet, although catching some interest in the Tokyo open after consolidating its recent rally to fresh two month highs at levels last seen in mid-September this week. Currently, USD/JPY is trading at 111.33, up 0.16% on the day, having posted a daily high at 111.38 and low at 111.14.

Elsewhere, as the market is becoming more focused on the possibility of BOJ normalisation, policymakers’ comments will be important for JPY in the near term, explained analysts at Nomura who added, “there will be many BOJ board members’ speeches scheduled over the next two weeks.”

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“Spreads appear somewhat vulnerable in the aftermath of Wednesday’s Fed minutes, as market participants consider the outlook relative central bank policy. The domestic risk is limited ahead of next week’s retail sales, and risk reversals are suggestive of a modest rise in the premium for protection against near-term JPY strength,” explained analysts at Scotiabank.

USD/JPY levels

Meanwhile, the technicals are bullish on the near term sticks but vs the broader tone, its hard to a see a considerable recovery beyond the daily 100 and 200 SMAs at 111.60 until a bullish catalyst revives the greenback. To the downside, there will not be enough impetus to push below 111 either, but if there is a break, sell stops between 110.40/70 would be a risk for a breakdown to 109.55 as the mid-September low.