USD/JPY: Break below double-bottom may open room for further downside - OCBC

USD/JPY fell sharply this morning after comments from BoJ's Nakagama added to policy normalisation bias, OCBC FX strategist Frances Cheung and Christopher Wong note.

Risks skewed to the downside

"The drop in USD/JPY may also have triggered stop-sell orders, resulting in the fairly sharp move to trade below 141.50 low. He said that real rates are at very low level and that BoJ will continue to adjust the degree of easing if the economy and prices perform in line with expectations. Overnight, USD/JPY had already traded heavy, alongside the decline in UST yields, which may be taking cues from the precipitous drop in oil prices."

"We reiterate that FedBoJ policy shifts and growing pace of normalisation can bring about faster narrowing of UST-JGB yield differentials and this should continue to underpin the broader direction of travel for USD/JPY to the downside. Pair was last seen at 141.80. Daily momentum is not showing a clear bias for now while RSI fell."

"Death cross earlier formed with 50-DMA cutting 200-DMA to the downside. Risks skewed to the downside. Support at 141.50 (Aug, Sep low). Break below puts 140.20. Resistance at 143.70, 145 (21-DMA) and 146.40 (23.6% fibo retracement of Jul high to Aug low)."