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USD/JPY declining on soft dollar and sourd risk appetite

  • Yen was the top performer vs the greenback with the investor moods flipped over in European trade and worsened in the US session.
  • Shorter term, and according to the 4 hours chart, the risk is skewed to the downside.

USD/JPY has been moving to the downside on a soft dollar and falling equities as we move through the last full trading week for 2018. Investor moods flipped over in European trade and worsened in the US session ahead of the Federal Reserve meeting tomorrow and the standoff in Washington over government funding, bringing a shutdown closer weighed on risk appetite.

USD/JPY fell from 113.50 to 112.75 while US data also weighed in the Empire and NAHB both missing the mark. As for yields, these also weighed with the US 10yr treasury yield falling from 2.89% to 2.86%, while the 2yr yield fell from 2.74% to 2.70%. 

  • Wall Street stocks plummet sending DJIA down over 500 points into correction territory

FOMC outlook

As for the Fed this week, a dovish hike is expected. The Fed funds rate futures still price a rate hike this week as likely (around 70%) but reduced pricing for 2019 tightening to only about 19 basis points total. (President Trump tweeted that it is “incredible that…the Fed is even considering yet another interest rate hike).”

USD/JPY levels

  • Support levels: 112.40 112.05 111.60
  • Resistance levels: 113.00 113.35 113.70

Valeria Bednarik, Chief Analyst at FXStreet explained that the pair has trimmed most of the past week's gains, and trades not far from the 100 DMA, which stands at  112.40, offering an immediate and relevant support as the indicator has rejected attempts to break lower ever since late August. 

"Below this last, there's little relevant in the way to October low at 111.37. Shorter term, and according to the 4 hours chart, the risk is skewed to the downside as the pair keeps pressuring its daily lows now developing some 50 pips below its 100 and 200 SMA, both converging directionless, as technical indicators near oversold readings with strong bearish slopes."

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