- Demand for bonds rises as the global economic outlook deteriorates.
- US stocks fall on Tuesday, further boosting the yen.
- USD/JPY breaks out of range and extends pullback from multi-year highs.
The USD/JPY ended days of consolidation with a sharp drop on Tuesday. The pair broke below 127.00 and fell to 126.34, the lowest level in a month. It remains close to the lows, pressured by risk aversion.
USD/JPY’s decline gained momentum on the back of US dollar weakness, lower yields and Wall Street stocks turning red. The Dow Jones falls 0.83% and the Nasdaq 2.78%. The US 10-year yield stands at 2.73%, a four-week low, while 30-year yields are back below 3%.
US economic data disappointed expectations (PMI and new home sales) and weighed on the dollar. DXY falls 0.37% and trades at 101.70, the lowest level in almost a month.
Analysts at MUFG Bank see the USD/JPY pair with a bearish bias, moving in the 122.00/129.50 range for the next few weeks. “The main risk to our bearish outlook for USD/JPY would be that global growth concerns ease in the month ahead. A pick-up in Chinese growth could be a potential trigger. Commodity prices and a possible stabilization of global equity markets should support a rise in USD/JPY, even if the dollar weakens more broadly.Yen weakness, however, would be more evident against currencies. of high beta raw materials.
If USD/JPY continues the decline, below the 126.30 support line, 126.00 is the next target, followed by 125.75 (11-12 Apr high). A recovery would now face immediate resistance at the 127.00/05 area. Above, the next one could be seen at 127.60 and then comes a downtrend line at 128.30.
Technical levels
Source: Fx Street
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