USD/JPY Pair Turns Bearish on Dollar Weakness
The USD/JPY bearish momentum has gathered pace in recent trading sessions on the weakness of the U.S dollar. Soft economic data supported by easing of geopolitical tension could as well explain why the safe-haven is slowly edging lower.
Disappointing U.S. housing data triggered weakness in the US dollar consequently fuelling a sell-off of the currency pair. Strengthening of the Japanese Yen on renewed concerns about the U.S. and China reaching an agreement has all but continued to fuel weakness in the USD/JPY pair. A breach of the 108.0 support level could as well have triggered further sell-offs.
A plunge to the 107.70 mark leaves the currency pair flirting with a crucial support level. A breach of the support level could trigger further sell-offs to the 107.35 level, which is the next support level. According to Valeria Bednarik, a Chief Analyst at FXStreet, the USD/JPY could face increased bearish potential after breaching key support levels.
“In the 4 hours chart, the pair is back below converging moving averages, while technical indicators turned south, the Momentum struggling with its 100 level and the RSI currently at 43. The failed attempt to recover will likely discourage bulls, exposing the pair to a steeper decline," Bednarik in a statement.
In addition to losing some ground against the Japanese Yen, the US dollar has also lost some ground against other major currencies. The U.S. yield edging lower and the British pound strengthening continues to support weakness in the greenback.
The British pound steadied, rising by 0.1% to 1.2438, after hitting its lowest level in more than two years on the growing concern of a hard Brexit. With Boris Johnson likely to be the next Prime Minister, the prospect of a hard Brexit is becoming increasingly clear.
The Euro, just like the British pound, steadied after weeks on the receiving end, rallying 0.1% to 1.1234. The modest gains come on restrained expectations of easing by the European Central Bank next week.
US Dollar Weakness
Weakness on the greenback comes hot on the heels of the US index climbing to one week high of 97.44 on stronger than expected retail sales numbers. Weakness crept in on housing market data falling short of expectations and Treasury yield edging lower on Wednesday
While economic data have given conflicting signs regarding the health of the U.S. economy, the dollar continues to face downward pressure. The impending rate cut by the Federal Reserve is a development that should continue to weigh in on the dollar strength ahead of the next policy meeting later in the month.
The International Monetary Fund warning that the greenback remains overvalued by between 6% and 12% also appears to be weighing in on the dollar strength.
It remains to be seen if the Federal Reserve will bulk to pressure and cut interest rate at the end of the month. Such a move could trigger further weakness in the dollar.