USD/JPY poised for a major break lower - TDS

Mazen Issa, Senior FX Strategist at TDS, points out that the USD/JPY pair is biased toward the downside. They see it falling below 110.00 in the coming weeks. 

Key Quotes: 

“The key pillars of divergence that supported the USD this year - macro, policy and asset prices - are now on a shaky footing. The Fed has lowered its dot plot and terminal rate while flagging concerns over global developments. This returns the focus to rate spreads as a G10FX driver going forward.”

“We think market sentiment will not improve amid a more cautious Fed. Unresolved trade disputes and an increasingly toxic US political climate suggest further risk reduction is likely."

“We think the JPY will lead the G10 in outperformance vs the USD. After sizable US equity allocations, early data suggests that a repatriation of foreign equity flows is already underway. This should help elevate its risk beta.”

“We think USDJPY is poised for a major break lower (sub-110) in the coming weeks. Technically, the break below 112.20 was bearish and a move through 111.38 should accelerate the downside.”