Japan-led sell-off faces FOMC test – DBS

DBS Group Research analyst Philip Wee discusses the recent dynamics of the USD/JPY amid a global USD sell-off initiated by Japan-centric policy risks. The report highlights the significance of the 50-day moving average and the upcoming FOMC meeting, which may influence the USD’s trajectory.

USD/JPY dynamics amid global sell-off

“It is somewhat fair to characterise USD/JPY as remaining in the driver’s seat of the global USD sell-off that began on Friday. The initial impulse did not come from US data or a shift in Fed expectations, but from renewed Japan-centric policy risk such as suspected JPY intervention, New York Fed rate-check chatter, and heightened domestic political sensitivity to lofty USD/JPY levels, especially after Japanese Prime Minister Sanae Takaichi called for snap elections.”

“Once USD/JPY broke below the 50-day moving average (156.60 on Monday), the subsequent decline in the DXY rallied G10 and Asian currencies. As markets look to Wednesday’s FOMC, expectations of a less dovish message depicting a stabilizing US labour market, above-target inflation, and resilient growth helped temper the momentum of the greenback’s sell-off.”

“Despite declining below December’s low of 154.35, USD/JPY did not take out October’s high of 153.30 and closed overnight at 154.18. The main hurdle to further downside is the 100-day moving average (currently sitting at 153.80), which has served as a strong technical support since July.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)