USD/JPY Forecast: Line chart favors bears, is JPY a reliable safe haven?

The Dollar-Yen pair fell to a one-week low of 108.50 in Asia as the US 10-year Treasury yield fell to a 10-month low of 2.054%. The continued tensions in the Korean Peninsula strengthened the demand for the traditional safe haven assets like gold, Treasuries and the JPY, CHF.

The US 10-year Treasury yield hit a one-month low of 2.054%. The curve or the spread between the 10-year yield and the 2-year yield flattened/narrowed to 77.8 basis points. A flatter yield curve works against the US dollar and vice versa.

Meanwhile, the Fed speak isn’t offering any support to the USD either. Policymakers are in no hurry to hike rates, but definitely want to get on with the balance sheet runoff program… however; markets currently aren’t too worried about the Fed’s reverse QE.

It is quite clear that the USD side of the story is weak. However, investors shouldn’t get too bullish on the Japanese Yen either… especially if the North Korea situation escalates. Moreover, Japan finds itself stuck in the middle of the North Korea crisis. If the situation escalates, the Japanese Yen may lose some of its safe haven appeal. Traders may not feel the same about the Yen and may move to gold, Treasuries and digital currencies.

To cut the long story short - Japanese Yen may lose its safe haven appeal if the North Korea tensions escalate… and Japan finds itself at the receiving end of the aggression. 

Technicals - Line chart screams bearish

Daily Chart

Observations

• Bearish continuation pattern - The falling channel support is seen at 108.58
• The 14-day RSI is bearish and well short of the oversold territory

View

• The line chart clearly favors the bears. Yesterday’s close was the lowest since mid April.
• An end of the day close below 108.58 would mark a downside break of the falling channel. Such a move would revive the big sell-off from the recent high of 114.49 and shall open doors for 106.64 [38.2% Fib R of 2011 low - 2015 high].
• On the higher side, only the bullish break of the falling channel would abort the bearish move. 
• The trend line sloping upwards from the April low and June low is likely to offer strong resistance. The trend line hurdle currently stands at 11.22 levels.