USD/JPY Forecast: Vols rise, risk-off could yield 109.43
|The Dollar-Yen pair dropped to a low of 110.07 yesterday and extended the losses to a low of 109.74 as the risk-off action gathered pace on the latest bout of North Korea tensions. The American data docket is light; hence the spot remains at the mercy of the broader market action. Worsening of the risk aversion in the European and US session could yield a sell-off to or possibly a break below the trend line support seen at 109.43 levels.
Technicals
Resistance
- 110.32 [5-DMA] - 110.49 [10-DMA]
- 110.59 [weekly 50-MA]
- 110.98 [61.8% Fib R of 108.80-114.49]
Support
- 109.43 [support offered by the trend line sloping upwards from the April 17 low and June 14 low]
- 109.00 [psychological level]
- 108.80 [June 14 low]
Daily chart
Observations
- Falling channel established
- Bearish 14-day RSI
View
- Repeated rejection near 111.00 levels this month, followed by a break below the support at 109.84 [Aug 4 low], indicates the sell-off from the high of 114.49 has resumed.
- The spot could test support at 109.43 levels.
- An end of the day close below 109.43 would add credence to the rejection at the monthly 50-MA and open doors for a bigger sell-off to 108.00 levels.
- On the higher side, only a break above 111.00 would signal bearish invalidation.
The uptick in Vols indicates the scope for further sell-off
The one-month ATM option volatility [green line] has ticked higher to 8.38 from the previous day’s print of 7.925. That indicates the possibility of a sell-off towards 109.43 levels today.
Tuesday’s sell-off in the spot was also accompanied by an increased demand for the Put options. This is evident from the deterioration in the one-month risk reversal [magenta line] from -0.975 to -1.025.
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