- The sustained selling bias of the USD continued to put pressure on the USD / JPY.
- A break below the 38.2% Fibonacci level accelerated the intraday decline.
- The trend channel support could help limit further losses for the pair.
The pair USD/JPY added to its intraday losses and fell to fresh seven-week lows around the 107.60-55 region heading into the American session.
The bearish bias surrounding the US dollar remained constant amid expectations that the Fed will keep interest rates low for a longer period. Aside from this, growing concern over rising COVID-19 cases in some countries benefited the safe-haven Japanese yen and put additional pressure on the USD / JPY pair.
Meanwhile, a sudden drop over the last hour or so could be attributed to a further downward leg in US Treasury yields and technical selling below horizontal support at 107.80. This marked the 38.2% Fibonacci level of the strong bullish move 102.59-110.97 and could have already set the stage for further weakness.
Looking at the bigger picture, the recent pullback from around 111.00, or one-year highs hit in March, has occurred along a downward sloping channel. This further points to a well-established short-term downtrend and supports the prospects for an extension of the ongoing depreciation movement.
With that said, the RSI (14) on the daily chart has moved to the brink of entering oversold territory. Therefore, any subsequent decline is more likely to be limited by the lower bound of the trend channel. The mentioned support is pegged near the 107.40 region, which if broken should pave the way for a stronger decline.
On the other hand, any recovery attempt could now face immediate resistance near the 38.2% Fibonacci level, around the 107.80 region. This is followed by close to 108.00, above which a short hedging attack has the potential to lift USD / JPY further towards trend channel resistance, close to 108.50.
4 hour chart
Technical levels
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