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USD/JPY dips below 138.00 amid dollar weakness, downside looks limited

  • USD/JPY is witnessing some selling for the second day in a row amid modest dollar weakness.
  • The divergence between the monetary policy of the Fed and the Bank of Japan, together with a positive risk tone, weighs on the yen and limits the pair’s losses.
  • Also, investors may refrain from opening aggressive positions ahead of the BoJ meeting on Thursday.

The pair USD/JPY moves lower for the second day in a row on Monday and falls further from 24-year highs, around the 139.35-139.40 area touched last week. The steady intraday decline has extended into the first hour of the European session and has dragged the pair below the 138.00 level.

A number of influential FOMC members opposed market expectations of a 100 basis point rate hike at the next meeting of monetary policy on July 26 and 27. In fact, Fed Governor Christopher Waller and St. Louis Fed President Jim Bullard, the Fed’s biggest hawks, said last Thursday that were not in favor of a further rate hike. Additionally, Atlanta Fed President Raphael Bostic warned Friday that too drastic a move could undermine the positive aspects of the economy and increase uncertainty. This, in turn, triggered some profit-taking around the US dollar near two-decade highs, which extended into the first half on Monday and put some downward pressure on the USD/JPY pair.

Having said that, the wide divergence in the monetary policy stance adopted by the US central bank and the Bank of Japan it should act as a tailwind for the pair. Aside from this, a positive tone around equity markets could further weigh on the safe-haven Japanese yen and help limit deeper losses for the USD/JPY pair, at least for now. Investors could also refrain from opening aggressive positions ahead of the Bank of Japan’s latest monetary policy update on Thursday. However, the fundamental background remains favorable to the bulls and supports the possibility of some buying at lower levels. This warrants some caution before positioning yourself for further losses.

Therefore, it will be prudent to wait for a strong follow-up of the selling before confirming that the pair has topped in the short term. In the absence of any major US economic releases on Monday, US bond yields will influence dollar price dynamics and give the USD/JPY pair some momentum. Investors, on the other hand, will be guided by market risk sentiment to take advantage of some short-term opportunities.

USD/JPY technical levels to watch


last price today 137.97
daily change today -0.63
daily change today -0.45
Daily opening today 138.6
daily SMA20 136.28
daily SMA50 132.77
daily SMA100 127.88
daily SMA200 121.13
Previous daily high 139.13
Previous Daily Low 138.38
Previous Weekly High 139.39
Previous Weekly Low 135.99
Previous Monthly High 137
Previous Monthly Low 128.65
Daily Fibonacci 38.2% 138.67
Daily Fibonacci of 61.8% 138.84
Daily Pivot Point S1 138.28
Daily Pivot Point S2 137.96
Daily Pivot Point S3 137.54
Daily Pivot Point R1 139.03
Daily Pivot Point R2 139.45
Daily Pivot Point R3 139.77

Source: Fx Street

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