The Nikkei is at session lows now, down 2% on the day
The pair is closing back in on the 110.00 handle and trades near the lows for the day as equities continue to fall ahead of the close of Asian trading. The lira has recovered some of its earlier losses, but fears of contagion remain dominant in the market.
With Erdogan reluctant and/or very much against raising interest rates to save the lira, the only real option is capital controls and even then we're still not sure if that will be coming. As Adam pointed out earlier, any talk of such a measure being implemented would spark further run-off in the currency itself prior to any possible announcement.
Either way, the fact that EM in general is being routed and stocks are down is promoting flows into the yen.
For USD/JPY, we're closing in on bids at the 110.00 handle where there is also some support from large expiries seen at the figure level. However, if equities continue to slide and we start seeing losses in US equity futures then the figure level might not hold up for too long.
Just below there is additional support from the 200-day MA (blue line) @ 109.95 followed by the 100-day MA (red line) @ 109.74. Those will be two key areas to look at as well in the latter sessions.
Right now, sellers are in charge as near-term momentum and flows favour them still as long as the risk-off backdrop remains. But let's see if that's enough to take it to the 110.00 handle in European trading later.
