Drops over a week, looks to 131.40-30 to offer some support

  • USD/JPY drops for the second day in a row and falls more than a week on Thursday.
  • The post-US CPI USD sell bias, falling US bond yields continue to put pressure on the pair.
  • The risk impulse could undermine the safe-haven JPY and help limit the slide, for now.

USD/JPY is attracting further selling near the 133.30 region on Thursday and extends the previous day’s rejection dip from the 50-day SMA. The intraday descent extends into the start of the North American session and drags spot prices to a 1-week low around the 131.75-131.70 area over the past hour.

The US dollar remains depressed near its lowest level since late June amid diminishing odds of a more aggressive rate hike from the Fed. Apart from that, a further drop in US Treasury yields narrows the US-Japan rate spread and benefits the Japanese Yen, which, in turn, puts downward pressure on the pair. USD/JPY.

That said, the rally in risk – as illustrated by a strong performance in equity markets – could limit any further gains for the safe-haven JPY. This, the divergent monetary policy stance adopted by the Fed and the Bank of Japan, should provide some support for USD/JPY and limit the slide, at least for now.

From a technical perspective, the bulls are now looking to the strong horizontal resistance breakout of 131.50-40 to offer some support. This is closely followed by the 100-day SMA, around the 131.20 region, which if broken decisively would be seen as a new trigger for bearish traders and cause an aggressive technical sell-off around the USD/JPY pair.

The bearish trajectory could then accelerate to challenge the monthly swing low, around the 130.40-130.35 region hit on August 2nd. next stage of a directional move for the USD/JPY pair.

On the other hand, the 132.50-132.55 region now appears to be capping any rally movement. Sustained strength beyond that could trigger a short cover and allow USD/JPY to rally back towards 133.00. Some follow-on buying, leading to a subsequent move above the daily high around the 133.30 region, would negate the negative bias.

USD/JPY could then climb to the 133.80-133.85 intermediate hurdle en route to the 134.00 mark and the 134.30 resistance zone. The upward trajectory may extend towards the psychological mark of 135.00, above which the bulls may aim to conquer the strong 50-day SMA barrier, currently around the 135.20-135.25 region.

USD/JPY daily chart

Key levels to monitor