USD/JPY faces strong resistance at 106.70/85 – BBH

Analysts at BBH have noted the relevance of the resistance area at 106.70/85 in USD/JPY.

Key Quotes

“The nearly 5.2% decline, prior to the Turkish developments, was driven anticipation of Abenomics 2.0, with new monetary and fiscal stimulus. The Abenomics trade was short yen and long Japanese equities. This had been unwound and helps explain the yen's strength in H1 16”.

“However, expectations of new and aggressive stimulus (captured in the talk of "helicopter money"), some participants are again selling the yen and buying Japanese stocks (the Nikkei advanced 9.2% last week)”. 

“The JPY106.70-JPY106.85 area is an important hurdle for the dollar. A convincing break could signal a recovery toward JPY110, which is about a 50% retracement of this year's move”.

“However, before getting there, there is a band (JPY107.70-JPY108.60) that may take some time to overcome. In thin NY activity before the weekend, the dollar dropped nearly a big figure (from ~JPY105.50 to ~JPY104.50) on the Turkey could attempt. However, the failure of the coup will likely allow the dollar to return to status quo ante”.