USD/JPY: More downside – OCBC

USD/JPY fell in response to Powell’s dovish remarks last Friday and extended its decline this morning after escalating geopolitical tensions between Israel and Hezbollah over the weekend, note OCBC FX strategist Frances Cheung and Christopher Wong.

Remain biased for downside play in USD/JPY

“The bullish momentum on the daily chart has declined while the RSI has declined. The risks are tilted to the downside. Support at 142, 140.40 (61.8% fibo). Resistance at 144.50 (2023 50% fibo retracement, 2024 low to high), 147.20 levels (21 DMA). We remain biased to downside play in USD/JPY.”

“Governor Ueda’s comments in parliament last Friday reinforced the view that BoJ rate hikes remain on the table, while Powell’s Jackson Hole speech reinforced the view that the Fed’s next move is a cut.”

“The broader direction of travel for USD/JPY has changed as Fed-BoJ policies have moved from divergence to convergence, and this should continue to support USD/JPY’s downside. In addition, geopolitical concerns are another factor that could add to support for the safe-haven JPY.”