This is a tough one to square fundamentally
July is the worst month of the year for USD/JPY. It's fallen an average of 1.15% in the past decade. The performance has been more mixed over different periods but the overall trend is lower.
The problem here is fundamentals. There is a big risk that the Fed pivots to something more-neutral than the current stance because of the China-US trade truce. At the moment, the market is still looking at a 20% chance of a 50bps cut at the end of the month and bond yields are severely depressed. On top of that, today's ISM manufacturing index was better than expected.
The other side of the argument is that the Fed isn't going to be whipsawed. They'll cut now and play the long game, keeping more cuts on the table without framing this one explicitly as an insurance cut. There's more room to the downside if that's the case.
At the moment, I can't get past the fundmentals but the technicals offer an opportunity to manage risk. The June high of 108.80 and the early-May low of 109.02 are both natural resistance points and the risk is low compared to the reward of a fall to the June low or even the flash-crash low.
If you missed it, here is the scorecard from our June seasonals package.
