USD/JPY Fresh Drop & Key Technical Levels

  • USDJPY
    (${instrument.percentChange}%)

USD/JPY

The risk situation normalized on Monday, but a new risk-off wave hit markets earlier, as Moderna's CEO Stéphane Bancel warned of likely lower vaccine efficacy in an interview with the Financial Times, saying that "I think it's going to be a material drop". [1]

This news sent investors to the arms of the Japanese Yen, which traditionally acts as safe heave, while the US Dollar remains unable to take advantage of its own safe-haven status, since Covid jitters cause an adjustment to heightened market expectations around the Fed's tightening path.

As such, USD/JPY takes another plunge today - following its worst day since the start of the pandemic – that brings it at an important technical juncture. It has two daily closes well below the 23.6% Fibonacci of the "August Low/November multi-year High" advance (113.91) and now probes the next level at (112.92-71), which also includes the upper border of the Ichimoku Cloud.


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It is clear that significant technical damage has been done, on the technical front, over the last few days and the Relative Strength Index (RSI) also adds to the downside, as it has broken below 50. These factors have created risk for further decline, with the next support located at the 112.11-111.90 area.

On the other hand, the US Dollar managed to stage a rebound at the start of the week and avert a daily close below the EMA50 (orange line), while on smaller timeframes the RSI moves towards oversold territory.

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Furthermore, the pair can also hope for some support from the aforementioned Ichimoku cloud and as long as it can defend this key level (112.92-71), another effort towards 113.70-90 could be in the cards. Further recovery though, beyond these levels does not seem easy at this stage.

In any case, the technicals are in the background and caution is needed, as we have seen a spike in volatility and uncertainty due to the Omicron variant news.


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Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 03 Jul 2022 https://www.ft.com/content/27def1b9-b9c8-47a5-8e06-72e432e0838f

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