USD/JPY slumps to two-week lows below 105.50
|- USD/JPY came under renewed pressure and dropped below 105.50.
- Wall Street's main indexes look to open sharply higher.
- US Dollar Index falls for third straight day on Tuesday.
The USD/JPY pair spent the first half of the day moving sideways near 105.70 but lost its traction in the last hour. As of writing, the pair was trading at its lowest level in two weeks at 105.41, losing 0.3% on a daily basis.
The broad-based USD weakness seems to be causing the pair to push lower on Tuesday. After closing in the negative territory on Monday, the US Dollar Index edged lower and was last seen losing 0.22% on the day at 92.85.
However, major equity indexes in the US look to open the day higher with the S&P 500 futures rising more than 0.7% and risk flows could make it difficult for the JPY to preserve its strength. Heightened hopes for an effective coronavirus vaccine and the upbeat data from China provided a boost to risk sentiment on Tuesday.
Focus shifts to FOMC
Industrial Production, Capacity Utilization, Import Price Index and Export Price Index data will be featured in the US economic docket. In the early trading hours of the Asian session on Wednesday, Trade Balance data from the US will be looked upon for fresh impetus.
More importantly, the FOMC's Interest Rate Decision and the Monetary Policy Statement on Wednesday will be watched closely by investors. TD Securities analysts think that USD/JPY could extend its slide toward 104.80 if the Fed adopts a dovish tone. Analysts explain a dovish outcome as: "Introduction of specific inflation-outcome-based forward guidance, such as a minimum 2.5% pace before tightening; QE made more long-end focused, boosting stimulus in effort to raise inflation and lower unemployment."
Technical levels to watch for
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