TD on USD/JPY: Approaching key trend support, looks precarious

Technical Analysis

Author: Eamonn Sheridan | yen

A client note from TD Securities Global Strategy on the yen and the BOJ today. I'll jump straight to their technical analysis and then back track 

From a technical standpoint, USDJPY looks poised to enter into a new, but lower, trading range.
  • The break of 110.80/111.00 suggests the completion of a H&S formation. Further, USDJPY is approaching key trend support that looks precarious and would put 108 as the next major downside attractor.
  • Rallies towards 111.75/00 is a fade point.
OK, further (non TA) notes from TD on the BOJ:

Bank of Japan meeting should be a staid affair
  • Kuroda resolute in leaving YCC intact for the foreseeable future
  • While still early, we think markets should begin positioning for a positive surprise from the BoJ at upcoming meetings
The messaging will stress the Bank remains far from the inflation target
  • there are signs that price pressures are percolating ... a diffusion index on underlying inflation has persistently demonstrated a positive bias since 2014
  •  Importantly, this is now supported by a decisively positive output gap and a labor market (one of the few in the DM) operating past the point of full employment (a development Kuroda acknowledges)
And, more bits an pieces: 
  • Market speculation is premature in assuming the BoJ is readying an exit strategy .
  • Shutdown or stopgap leaves us comfortable holding our USDJPY short (targeting 107)
  • The curve is pricing in ~2.6 Fed hikes in 2018; we view this as fair but suggests risk/reward leans towards less, not more hikes on political tumult