After three of the most influential central banks delivered “hawkish” monetary policy decisions, the USD/JPY slides during the New York session trading at 113.36 at the time of writing. As witnessed by European and US equities dropping, the market sentiment is downbeat as investors assess monetary policy shift on the Fed, BoE, and ECB as the year-end looms.
Earlier in the Asian session, the Bank of Japan decided to slightly scale back the pandemic stimulus, though it kept rates unchanged at -0.10%. Additionally, it extended its pandemic-relief scheme by six months, ensuring that commercial banks keep funds flowing towards small branches.
According to Bank of Japan Governor Kuroda, he said that inflation remains well below the 2% target of the central bank, and it may “perk up next year,” mainly caused by high energy prices. However, he does not foresee it would reach the level seen in Western economies, so he emphasized that there is no need to tighten monetary policy.
In the meantime, the US 10-year Treasury yield, which strongly correlates with the USD/JPY currency pair, falls four basis points, sitting at 1.378%, below the 1.40% threshold, a headwind for the USD vs. the JPY. Contrarily, the US Dollar Index, a measurement of the greenback’s value against six peers, rises some 0.15%, up to 96.19.
The USD/JPY failure at the 50-day moving average (DMA) exerted downward pressure on the pair, which slumped towards the confluence of an upslope trendline and the October 28 cycle low at 113.25, a support level that put a lid on the fall, as USD buyers, defended the aforementioned level. Furthermore, as long as the longer time-frame DMAs remain below the spot price, the USD/JPY has an upward bias, but the move appears to be spurred by falling US bond yields.
On the downside, the October 28 pivot low at 113.25 is the first support level for the USDY/JPY. A breach of the latter would expose essential support levels, like the 113.00 figure, followed by the November 30 swing low at 112.53.
To the upside, the USD/JPY first resistance level would be the 50-DMA at 113.81. A break above that level would open the door for further upside. The next resistance would be 114.00, followed by the October 20 high at 114.70.
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