USD/JPY is trading in the middle between the cycle high of 114.30 and the cycle low of 108.10. Will it stick to the nice 111.11 level? Not necessarily.

Here are three reasons why this major pair could fall, and a chart demonstrating the downtrend channel.

1. Fed speakers are more dovish: The Fed announced a hike and sounded hawkish tones. This was followed by a further optimism from Dudley. However, this is already priced in. Since then, we had different winds blowing from Fed officials. Evans expressed worried about deflationary forces coming from Amazon. Harker opened the door to delaying even the balance sheet reduction if inflation does not pick up. And Kashkari sticks to his dovish dissent. All in all, we hear more voices expressing worries about weak inflation.
2. Geopolitical worries: Saudi Arabia replaced its heir with a young and aggressive prince. Tensions with Qatar and Iran could rise. President Trump expressed some disappointment about China’s lack of success with North Korea. When worries rise, the Japanese yen has room to the upside.
3. US healthcare bill: US politics recently had less influence on markets, with monetary policy taking the lead. Yet politics is never too far away. Republicans in the Senate are expected to reveal their draft healthcare bill. They worked on it in secret as the House Bill proved very unpopular. A recent estimation showed that 23 million Americans will lose their health insurance. Keeping their work under the wraps helped shift the attention to other topics, but when it is revealed, it will likely cause a stir. Another failure to pass the bill could imply a potential failure on tax reform and infrastructure that markets want.

USD/JPY downtrend channel

As the daily chart below shows, dollar/yen is experiencing lower highs and lower lows. The trend is to the downside.

At current levels, support awaits at 110.70, followed by 109.60 and 108.80. Further support is at the cycle low of 108.10.

Looking up, resistance is at 111.80, 112.20, 113 and the cycle high of 114.30.