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USD/JPY rebounds from multi-month lows, continues to trade below 108

  • Fed's dovish shift continues to weigh on the greenback.
  • 10-year US Treasury bond yield plummets to lowest level since November 2016.
  • Wall Street looks to open sharply higher on Thursday.

The USD/JPY pair dropped to its lowest level since the flash crash witnessed in early January at 107.46 today but staged a technical correction ahead of the American session. As of writing, the pair is trading at 107.80, losing 0.25% on a daily basis.

The FOMC removed the phrase "patient" from its policy statement following its 2-day meeting this week and opened the door to potential rate cuts in the remainder of the year. With the initial reaction, the greenback came under strong selling pressure and the 10-year US Treasury bond yield turned south and dropped below the critical 2% mark for the first time since late 2016, forcing the USD/JPY pair to push lower. The US Dollar Index, which earlier this week advanced up to 97.77, made a sharp U-turn in the late American session on Wednesday and extended its slide today. As of writing, the index was down 0.58% on the day at 96.66.

Summarizing the FOMC event, "While the ‘dots’ projections showed just one rate cut expected by the median committee member in 2020, 7 of 17 members now expect 50bp of cuts in 2019. In the press conference, Chair Powell gave this a further dovish spin by stating that even those who expected no change in policy this year nonetheless saw a stronger case for further accommodation,” said ABN AMRO analysts. 

Meanwhile, the Bank of Japan didn't announce any changes to its monetary policy as expected and didn't have an impact on the JPY's valuation. "It is possible to keep current low rates beyond the spring of 2020," BoJ Governor Kuroda said during the press conference.

Later in the day, weekly jobless claims data and Philly Fed Manufacturing Survey from the U.S. will be released but are unlikely to help the greenback gather strength. Markets will also be paying close attention to stock markets. The S&P 500 Futures is up 0.85% on the day, suggesting that Wall Street is likely to open sharply higher, which could make it difficult for the JPY to preserve its strength in a risk-on environment.

Technical levels to watch for


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