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USD/JPY drops to 3-month lows below 111 as stocks sell-off intensifies

  • Three major equity indexes in the U.S. drop more than 2%.
  • US Dollar Index extends slide toward 96.

The USD/JPY pair came under a renewed selling pressure in the NA session on Thursday and fell below the 111 mark for the first time since early February. As of writing, the pair was down 1.4% on a daily basis at 110.90.

A broadly weaker greenback and negative market sentiment as reflected by a sharp fall in the major U.S. equity indexes in the second half of the day weighed on the pair. The US Dollar Index, which gauges the dollar's value against a basket of six major currencies, failed to make a meaningful recovery and continued to push lower as concerns over a possible economic slowdown amid the FOMC's hawkish stance hurt the demand for the buck. At the moment, the DXY is at its lowest level in a month at 97.20, losing 0.8% on the day.

Additionally, the fact that Chairman Jerome Powell downplayed the stock market volatility during the press conference yesterday dragged stocks lower and the sell-off continued today with the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite all looking to close the day more than 2% lower.

In the early trading hours of the Asian session on Friday, Japan's Statistics Bureau will publish the inflation report. Markets expect the annual core CPI to stay unchanged at 1% on a yearly basis in November. However, the market reaction is likely to stay muted as the Bank of Japan's governor Kuroda already noted that the inflation was not expected to pick up anytime soon during his press conference following the monetary policy announcements on Thursday. 

Technical levels to consider

The pair could face the first technical support at 110.45 (Sep. 6 low) ahead of 110 (psychological level) and 109.75 (Aug. 21 low). On the upside, resistances are located at 111.60 (200-DMA), 112 (psychological level) and 112.60 (daily high).

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