Unstoppable Skydiving Mode?

USDJPY hit a 5-month low at 107.45 following the Fed’s dovish signal. In the near term this could scope for a rebound, in the medium term however there is nothing positive for the asset.

For one, BoJ Governor Kuroda strongly emphasized during his post-meeting press conference today (following the widely anticipated decision to leave policy unchanged) that the central bank “won’t hesitate” to consider further monetary easing if necessary. For two, the risk-on vibe in global stock and commodity markets, inspired by expectations for central bank accommodation, should set the scene for Yen underperformance, as per the usual inverse correlative relationship the Japanese currency has with stock market direction.

From the economic data perspective, US data earlier missed expectations and added further pressure on the US Dollar, with:

US initial claims falling 6k to 216k in the week ending June 15

US Q1 current account deficit narrowed to -$130.4 bln from -$143.9 bln in Q4

US Philly Fed index dropped 16.3 points to 0.3 in June from 16.6 in May. The index was at 20.8 last June. It hit a recent high of 32.3 in May 2018 (the 37.8 from February 2017 was the peak going back to 1993), while February’s -4.1 was a 33-year low.

The current data could add to market expectations for a cut in July, even though the future gauge looked brighter.

Meanwhile, the recent outbreak of cordiality on the US-China trade negotiation front ahead of the G20 summit is also relevant in this regard. USDJPY still maintains its trend support at 107.10-13. However as this is a weak Support, a close below 107.45 would mean that the Next Support comes at April 2018 low value, at 105.64, or even lower at the 105.00 area.

Medium term momentum indicators also present the strong negative sentiment for USDJPY.