USD/JPY: Fundamental and technical risks titled to the downside, targets break of 109.20 support, eyes 21-D SMA

The greenback is bleeding out slowly and US yields are heavy following a sell-off on Wall Street lead by news in the DJIA component, Caterpillar, after it reported disappointing earnings results, citing China's slowing economy and higher material and transpiration costs.  The USD/JPY, closely correlated to risk sentiment, fell from 109.54 in London and has reached a low of 109.20 so far. The DXY has drifted to the downside to the bottom of the Bollinger band where it meets support in 95.69/70s. The benchmark 10-year yield has slid from 2.7670% to 2.7350%. 

It is a key week for stock markets, for we have a parade of earnings in the busiest week for earnings. At the same time, investors are braced for a number of economic reports as well as geopolitical updates in Brexit and Sino/US trade negotiations that are due to start in Washington on Wednesday. The Brexit vote is on Tuesday and we also have the US Federal Reserve, Wednesday, that is expected to leave interest rates unchanged at the end of its two-day meeting. Nonfarm payrolls will then round off the week on Friday. 

USD/JPY levels

The pair has struggled at the 38.2% Fibo retracement repeatedly and as we move into critical risk events, the yen is taking up the bid below the daily pivot point of 109.65.  "USD/JPY’s correction higher is coming to an end", analysts at Commerzbank suspect.

"The intraday Elliott wave counts remain negative and the daily Elliott wave count continues to indicate failure ahead of 110.30. We would then allow slippage back towards 107.75/50 band and possibly the 104.10 spike low."