The USD/JPY spot looks set to test long-term rising trendline support of 108.00, courtesy of broad based risk aversion in the equities and the resulting demand for the haven assets - treasuries, Yen.
As of writing, the currency pair is trading at 108.50 levels, having clocked a high of 109.30 earlier today. As expected, the spot created another lower high of 110.48 (Fri's high) on the price chart as the sharp rise in the treasury yields spooked the markets.
Monthly chart - Eyes 108.00
The above chart shows-
- Repeated failure to take out the long-term descending trendline hurdle in Q4 2017 yielded a big drop below 110.00 in January.
- On the downside, major support is seen at 108.00 - ascending trendline drawn from the September 2012 low and August 2016 low.
- The RSI is biased bearish.
The RSI on the 1-hour chart is rising from the oversold territory. However, the upticks to 109.00 and above could be short-lived as the RSI on the 4-hour and daily time frame is trending lower in favor of the bears. Also, the 5-MA and 10-MA on 1-hour and 4-hour carry a strong bearish bias.
Hence, the spot looks set to test long term rising trendline support of 108.00. Further losses cannot be ruled out if the risk aversion worsens. That said, caution is still advised.
A weekly close below 108.00 would signal a long-term bullish-to-bearish trend change and wound increase odds of the pair falling to 100.00 levels this year.
Options market favors the downside in USDJPY
- The one-month 25 delta risk reversals (JPY1MRR) fell to -1.81; the lowest level since Oct. 9. It indicates JPY calls claim significantly higher premium compared to JPY puts.
- Further, the one month at the money options volatility (JPY1MO) rose to 10.50 - the highest level since Apr. 21.
The combination of rising demand for JPY calls and a jump in volatility indicates the dealers are likely seeing further drop in the USD/JPY pair.
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