The USD/JPY pair extended its decline on Tuesday and dropped below the 148.00 level for the first time in two weeks. The pair was weighed down by a combination of weak US data and risk-off sentiment in the global markets.
The US dollar came under pressure after the release of disappointing US economic indicators. The Conference Board’s Consumer Confidence Index fell to 109.3 in November, the lowest level since February, and well below the market expectation of 113.0. The index was dragged down by the worsening outlook for income, inflation, and business conditions.
Meanwhile, the US Existing Home Sales report also missed the market consensus and showed a decline of 0.2% month-over-month in October to a seasonally adjusted annual rate of 6.09 million units. The report attributed the drop to the persistent supply shortage and high prices that have hampered the housing market recovery.
The US data cast doubts on the strength of the US economic recovery and the prospects of a faster monetary policy tightening by the Federal Reserve. The US dollar index, which measures the greenback’s performance against a basket of six major currencies, fell to a two-week low of 95.82 on Tuesday.
Risk Aversion Boosts Demand for Safe-Haven Yen
The Japanese yen, on the other hand, benefited from the risk-averse mood in the global markets. The rising concerns over the new coronavirus variant, Omicron, and its potential impact on the global growth and trade, triggered a sell-off in the equity and commodity markets. The MSCI World Index, a gauge of global stocks, plunged by 2.5% on Tuesday, while the S&P 500 and the Nasdaq Composite indices dropped by 1.9% and 1.6%, respectively.
The Japanese yen, which is considered a safe-haven currency in times of uncertainty, attracted inflows from investors seeking shelter from the market turmoil. The yen also gained support from the Bank of Japan’s (BoJ) hawkish comments on Monday, when the central bank governor Haruhiko Kuroda said that the BoJ would not hesitate to adjust its monetary policy if needed to achieve its 2% inflation target.
USD/JPY Technical Outlook
The USD/JPY pair closed the day at 147.75, down by 0.57% on Tuesday. The pair broke below the 148.00 psychological level and the 50-day simple moving average (SMA), which acted as a strong support in the previous sessions. The pair also breached the lower boundary of the ascending channel that has been in place since late September.
The technical indicators suggest that the pair has entered a bearish phase and could extend its losses in the near term. The 14-day relative strength index (RSI) is below the 50 level, indicating a loss of momentum for the buyers. The moving average convergence divergence (MACD) histogram is below the zero line and the signal line, signaling a bearish crossover.
The immediate support for the pair is seen at 147.50, which coincides with the 38.2% Fibonacci retracement level of the rally from 143.53 to 151.94. A break below this level could open the door for a test of the next support at 146.85, which corresponds to the 50% Fibonacci retracement level and the 100-day SMA. Further down, the 61.8% Fibonacci retracement level and the 200-day SMA are located around 146.20.
On the flip side, the pair needs to reclaim the 148.00 level and the 50-day SMA to regain some traction. The next resistance is seen at 148.85, which is the high of November 22. Above this level, the pair could challenge the upper boundary of the channel and the 151.00 round figure. The YTD high of 151.94 is the ultimate target for the bulls.