- USD/JPY has been trading in a tight range in Asia
- The risk of a bearish extension will increase on a break below 107.45.
USD/JPY is flat in the Tokyo opening hour as we wind down into the close for the week following a data-heavy number of sessions which have left more questions unanswered and the outlook murky.
USD/JPY has been trading in a tight range in Asia, between a low of 107.92 and a high of 108.08. Overnight, the pair ranged between 107.80 and 108.10, reversing the FOMC bounce and brushing off the Bank of Japan’s dovish tone as US stocks failed to convince on the upside and markets remains sidelined.
The S&P 500 finished less than a point lower near 3,006 after coming in just a couple of points shy of its all-time high of 3,025.86 scored on July 26th. The Dow lost about 53 points to close near 27,093, while the Nasdaq Composite put on 5 points, or 0.1%, to close near 8,183. As for yields, the US 2-year treasury yields dropped from 1.77% to 1.74% (versus 1.67% pre-FOMC), while the 10-year yield ranged between 1.75% and 1.80%.
Fed expected to cut 25 basis points before year is out
Following the hawkish rate cut from the Federal Reserve, markets are still pricing 25bp of easing by year-end, and a terminal rate of 1.17%. As for the Bank of Japan, if today’s Consumer Price Index is anything to go by, the central bank may well be forced to act. “Japan Aug national CPI is seen decelerating to 0.3%yr overall, 0.5%yr on the core measures, the sort of reading that is behind the Bank of Japan’s dovish tone yesterday which sets the stage for fresh easing steps end-October,” analysts at Westpac explained.
Valeria Bednarik, the Chief Analyst at FXStreet explained that USD/JPY pair is consolidating just below the 108.00 level.
“The 4 hours chart shows that it has spent most of the day below the 20 SMA, after breaking below the moving average at the beginning of the day. Still holding above the larger ones, technical indicators are within negative levels, although without directional strength. The risk of a bearish extension will increase on a break below 107.45, a relevant Fibonacci support that has contained sellers for over a week.”