USD/JPY: Bears eye 61.8% Fib, but H&S could be in the making first

• USD/JPY bears are taking back the control and eye a downside target to support structure.
• US stocks are prime reason for the slide on Tuesday, more bearish fundamentals in the offing.
• Yen to pick up the prime risk-off flows as EMs firm and US coronavirus undermines USD's safe-haven allure.

USD/JPY is down on the day so far as US stocks take a take south, with the benchmarks unable to revive the optimism from seemingly impressive earnings from the banks. 

This week, the top banks are reporting their earnings and guidance. On the face of it, there were surprisingly impressive reports from the likes of Citi and JPMorgan. 
However, there were reminders of how dire the prospects are for them considering a cash-constrained market place and mass unemployment. 

More on that here: S&P 500 Index bull-trap set-off, drops into the bear's lair as bank's earnings get underway

EMs and US/China relations are the ticket to USD/JPY trajectory 

Meanwhile, the DXY is holding up on the 96 level as trade continues throughout the day, fending off the bearish momentum to below prior support at 96.27 after being capped at resistance 96.60 structure. 

The same bearish themes that supported the US dollar over the past couple of years are rearing their ugly head again, do this downside trajectory in the greenback could be limited at this juncture. 

However, with US COVID-19 cases spiralling out of control, investors may want to think twice about holding the greenback. 

Also, as counterintuitive is it may seem, given the risks to the global economic recovery, maintaining an eye on EMs is critical to determining the dollar's outlook. 1028 is a critical level in the MSCI which is acting as a new support structure.

Should EMs crack on with their bullish persistence, this could be a sign that the March-USD negative correlation to the trajectory will equate to a deeper correction in the DXY.

Given that the risk-off themes in the 2020 playbook, the yen, therefore, could be one of the more consistent beneficiaries of extended losses in the US dollar.  

The China/US tension is one of the themes that is brewing.

"If news regarding the build-up of Chinese tensions continues in the current trajectory, there is a very strong chance that the JPY will spike higher in the coming months," analysts at Rabobank argued. 

We would favour buying the JPY on dips in the current environment and see risk of USD/JPY heading back below 1.06 on a 3-month view.

The next critical risk, in this respect, is today's news conference:

US Pres. Trump to hold news conference related to Hong Kong and China

USD/JPY levels

A head and shoulders could be in the making on the hourly chart.

A subsequent bid may struggle at this juncture, with consolidation creating the right-hand shoulder.

Consequently, this will be giving fuel to the bears to renegage with a deeper retracement to the downside targeting a 61.8% Fibonacci retracement and prior support structure.