The USD/JPY currency pair has fallen off a cliff. It’s now trading just above the 143.45 area, a two-week low printed during the opening of the European day on Friday. It’s largely due to a perfect storm of external factors. Dovish expectations from the Federal Reserve and increasing worries over U.S. fiscal stability are pushing this trend. USD/JPY has dropped for a third consecutive day. This trend is further indicative that investors are reliably bearish.
The latest slide in the USD/JPY pair is a result of market expectations. Traders are betting on the Fed to remain dovish, even in its approach to communications. Underwhelming U.S. monthly retail sales data has stoked fears of an economic growth slowdown, quarter after quarter. That is placing even more pressure on the strength of the U.S. dollar. The USD Index (DXY) has fallen to its lowest level in almost two weeks. This downward trend is used to add to the bearish sentiment for USD/JPY.
The Japanese Yen (JPY) has picked up steam. This surge is driven by heightened speculation that the Bank of Japan (BoJ) will start raising interest rates in short order. The prospect of a meaningful shift in monetary policy further bolsters the JPY. Specifically, it enhances its attractiveness as a safe-haven asset during times of economic and market global turmoil. The JPY benefits from a camouflage hospital in its protected haven seeking as disputes about geopolitical challenges repeatedly normalize the class of investor danger-appetite.
The USD/JPY pair has faced resistance near the 145.35 to 145.40 region, which corresponds to the 38.2% Fibonacci retracement level. This technical barrier has firmly capped the upward potential of the pair in the past several trading days. In fact, oscillators on the daily chart are beginning to gain negative traction. This change enhances a more bearish view for USD/JPY, forcing traders to adjust their positioning.
Those earlier sessions were characterized as sharply bearish intraday breaks below the key 144.30 to 144.20 support zone. Such a breakdown proved to be a potent USD/JPY bear trigger. The currency pair’s decline reversed a bit in front of the 61.8% Fibonacci level. Traders continue to watch this territory as the first place support could be found, and it would mark another major bullish indicator.
What’s happening now underscores how exogenous economic shocks and central bank action can dramatically affect currency pairs such as USD/JPY. Both U.S. fiscal health and Japanese monetary policy are major focal points for market participants. So these issues will probably be overwhelmingly important in determining the direction of that currency pair going forward.