- The yen experiences strong selling for the fourth consecutive day and falls to a minimum of a month and a half.
- The selling bias of the dollar and the narrowing of the yield spread between the US and Japan continue to exert pressure.
- The break of the ascending trend line now supports the prospects for a further short-term depreciation move.
The pair USD/JPY came under selling pressure for the fourth day in a row on Monday and remains depressed through the first half of the European session. The pair fell to its lowest level since June 16 in the last hour, with the bears now looking to extend the decline beyond 132.00.
The US dollar’s selling bias following the FOMC remains on the first day of a new week, which turns out to be a key factor putting downward pressure on the USD/JPY pair. Aside from this, the recent narrowing of the US-Japan yield spread coupled with recession fears is benefiting the safe-haven Japanese yen and contributing to the slide.
From a technical point of view, Monday’s drop confirms a short-term bearish break below an ascending trend line that extends from the monthly low in April. However, any further decline could stall near the 131.30 area, or the 61.8% Fibonacci level of the strong rally from 127.15-139.39. The latter should act as a key point.
With the oscillators on the daily chart poised to enter oversold territory, the bears could wait for sustained weakness below said support before placing further bets. The USD/JPY pair could then become vulnerable to weaken below 131.00 and test intermediate support at 130.65 before falling to the key psychological level of 130.00.
On the other hand, any significant recovery attempts could face stiff resistance near the rising trendline support breakout point, around the 132.85 region. This barrier coincides with the 50% Fibonacci level and is followed by the 133.00 mark. Follow-up buying would suggest that the USD/JPY has bottomed out and trigger a short-covering rally.
USD/JPY daily chart
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Technical levels
Source: Fx Street
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