Renowned OCBC FX strategist Frances Cheung and Christopher Wong have pointed out that the USD/JPY pair experienced a significant decline this morning following comments from BoJ’s Nakagama regarding a potential policy normalization bias.
Downside Risks Highlighted
According to Cheung and Wong, the drop in USD/JPY could have triggered stop-sell orders, leading to a sharp move below the 141.50 low. BoJ’s stance on real rates being at a very low level and their willingness to adjust easing measures based on economic performance and price trends contributed to the downward pressure on the pair. The recent decline in UST yields and oil prices also influenced the bearish sentiment surrounding USD/JPY.
Analysts emphasize that potential policy shifts by the Fed and BoJ, along with the increasing pace of normalization, may result in a quicker convergence of UST-JGB yield differentials. This trend is expected to continue driving USD/JPY lower. At the time of analysis, the pair was trading at 141.80 with daily momentum lacking a clear bias and RSI indicating a decline.
The formation of a death cross, where the 50-DMA crosses below the 200-DMA, further supports the downside risks for USD/JPY. Key levels to watch include support at 141.50 (previous lows in August and September) and potential downside targets at 140.20. On the upside, resistance levels are identified at 143.70, 145 (21-DMA), and 146.40 (23.6% Fibonacci retracement level).
Analysis Breakdown:
In essence, the USD/JPY pair has experienced a significant decline driven by BoJ’s comments and broader market factors. The potential for policy normalization and adjustments in easing measures have created a bearish outlook for the pair. Technical indicators, such as the death cross formation and key support/resistance levels, further reinforce the downside risks. Traders and investors should closely monitor developments in central bank policies and market dynamics to navigate potential movements in the USD/JPY pair and make informed decisions regarding their investments and portfolios.