USD/JPY consolidates below 114.00, heads to lowest close in a month

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  • The US dollar posts mixed results on the Friday ahead of the Fed week.
  • Risk aversion and lower US yields weigh on USD/JPY.
  • The pair falls for the second week in a row, next support at 113.50.

After a short recovery, the USD/JPY resumed the decline and fell to 113.59, hitting a new one-week low. It is hovering around 113.70, consolidating weekly losses and on track for the lowest daily close in a month.

USD/JPY extends decline despite strong expectations of a Fed rate hike

The combination of risk aversion in financial markets and lower US yields weighed on USD/JPY during the week. It momentarily traded above 115.00 on Tuesday and then resumed the decline.

If the decline continues, the next key level for USD/JPY is the 113.50 area (last week’s lows) and then 113.20. The US dollar’s negative momentum could be eased by a firm recovery above 114.70.

The key event next week is the FOMC meeting. No change in the interest rate is expected on Wednesday, but a clear sign of a hike in March is seen. “A likely rate hike in March has been well communicated, so a ‘prepare for liftoff’ signal will not move the market. More important will be the guidance on QT as well as the funding rate after March. Unfortunately, we don’t expect definitive signs; the next dot chart update is in March. The result could be mixed messages”, warn analysts at TD Securities.

Technical levels

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