USD/JPY Outlook: Breach of key supports after dovish Fed may spark further weakness

USDJPY

The pair hit new low at 107.46 (the lowest since 3 Jan) in early European trading on Thursday, in extension of late Wednesday's post-Fed bearish acceleration. The US central bank left interest rates unchanged, as widely expected, but signaled readiness to cut interest rates in response to growing risks over trade conflict and weak inflation. After Fed's June meeting, focus shifts from the question if the central bank is going to cut rates in July's policy meeting, towards reduction percentage, as 0.25% and 0.50% cuts are both in play. Overnight's comments from US President Trump about his authority to replace Jerome Powell as Fed chairman, added to negative sentiment. Bank of Japan kept interest rates unchanged at 0.1% but pointed to rising global risks and their impact on Japanese economy, keeping opened government bond buying program. Dollar's fall was quite significant, despite markets anticipated the outcome of Fed's policy meeting and generated bearish signal on break of key supports at 107.81 (5 June low) and 107.56 (Fibo 61.8% of 104.59/112.40 rally). Daily close below these levels is needed to confirm break and open way for further weakness. There are no significant obstacles on the way towards next support at 106.43 (Fibo76.4%), violation of which would unmask key support at 104.59 (2019 low, posted after flash crash on 3 Jan). Some price adjustments on profit taking could be expected before bears resume. Broken former key support at 107.81 now offers solid resistance, with extended upticks expected to remain below falling daily Tenkan-sen (108.13) to keep bears intact.

Res: 107.81; 108.13; 108.32; 108.60
Sup: 107.57; 107.46; 107.00; 106.43

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