USD/JPY Review: Below 50-day MA amid Turkish turmoil, JPY call value hits 5.5-month high

  • Heavy selling in JPY crosses is dragging down USD/JPY.
  • Put value at 5.5-month high indicates investors are likely expecting a deeper drop in the spot.

The USD/JPY fell below the key support of 50-day moving average on Friday and hit a low of 110.14 in the Asian session today.

The decline in the pair could be associated with the Turkey crisis and the resulting sharp losses in the JPY crosses. For instance, ZAR/JPY or South African Rand to Japanese Yen has dropped 7 percent today as a record slide in Turkish Lira has likely triggered fears of contagion.

At press time, the currency pair is trading at 110.20. The pullbacks seen in the last three months had run out of steam around 50-day MA, hence the Friday's break below that level will have certainly emboldened the bears. As a result, the spot could extend the decline further to levels below 110.00.

Further, the USD/JPY one-month 25 delta risk reversals have dropped to -1.775, the lowest level since March 2, meaning the implied volatility premium for JPY calls (USD/JPY puts) is at the highest level in 5 months.

The bearish technical setup and the rising demand for JPY calls (bullish JPY bets) amid the negative macro picture favors a deeper drop in the USD/JPY to levels below 110.00.

USD/JPY risk reversals

USD/JPY Technical Levels

Resistance: 110.59 (July 26 low), 110.75 (session high), 110.88 (5-day moving average)

Support: 109.94 (200-day moving average), 109.73 (100-day moving average), 109.52 (daily pivot support 3)

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