USD/JPY breaks below 112 as Trump and Bullard comments drag USD lower

• US Pres. Trump reiterates his displeasure regarding Fed rate hikes.
• Fed’s Bullard argues that they should hold off on hiking further amid yield curve inversion.
• US Dollar Index drops below 94.50 to weigh on the USD/JPY pair.

The USD/JPY pair came under a heavy selling pressure in the early NA session and slumped to its worst level since July 11 at 111.75. As of writing, the pair was trading at 111.83, losing 0.57% on the day.

The pair’s recent fall seems to be caused by a fresh wave of USD selling that was triggered after comments from St. Louis Fed President James Bullard and the U.S. President Donald Trump.  

Commenting on the flattening yield curve, Bullard argued that a yield curve inversion was imminent and a real possibility and would be taken as a  bearish signal on the economy. Bullard further added that the GDP growth was losing momentum and the FOMC  needed to hold off on further interest rate hikes.

On the other hand, following his unorthodox comments on the monetary policy yesterday, President Trump, once again, took out to Twitter to voice his concerns over the Fed’s rate hikes. “China, the European Union and others have been manipulating their currencies and interest rates lower, while the U.S. is raising rates while the dollars gets stronger and stronger with each passing day – taking away our big competitive edge,” Trump wrote and added that tightening now would have hurt all they had done.

Following these comments, the US Dollar Index plummeted to its lowest level since Monday at 94.29 and was last seen at 94.32, where it was down 0.7% on the day.

There won’t be any other macroeconomic data releases in the remainder of the day. However, if stocks markets in the U.S. react negatively to these remarks, we could see the JPY preserve its strength against the buck.

Technical levels to consider

The pair could encounter the first technical support at 111.45 (20-DMA) ahead of 110.75 (Jul. 11 low) and 110 (psychological level). On the upside, resistances align at 112.00 (psychological level), 112.60 (daily high) and 113.15 (Jul. 18 high).