USD/JPY out of the bigger picture? - TDS

Analysts at TD Securities explained that USD/JPY has traded decisively below the key support/psychological level of 110. 

Key Quotes:

"For the near term, the balance of risk remains skewed to the downside.

Concerns over intervention risk may grow, but we think this is politically very difficult to do ahead of the G7 meeting held in Japan next month. We do not think 110 represents a major line in the sand for the BoJ. From our perspective, the recent appreciation in JPY is not disorderly enough to instigate currency intervention.

We remain short USD/JPY as we shift to our stretch target of 105. Ahead of this, we see significant support at 106.57 and around the 105.20/50 zone, which could see us take profit a little before reaching this goal. We move our trailing stop down to 110.75 as the 110.67 breakdown level now represents crucial resistance to the topside.

Thinking more broadly, however, we think the correction in USDJPY off last June’s cycle highs (125.86) may be drawing to a close. Momentum and flows may certainly drag spot lower from here, but we are increasingly moving neutral this pair from a medium-term perspective. 

With US equities outperforming their Japanese counterparts, these could be vulnerable to repatriation and profit taking by Japanese investors as risk aversion there has risen. FX market positioning has also deteriorated considerably for JPY bulls."