USD/JPY drops below 112 as DXY stays under bearish pressure

The USD/JPY pair failed to stay above the 112 mark in the early NA session as it lost its traction amid the increasing bearish pressure on the greenback and a relatively weaker risk appetite. At the moment, the pair is down 0.15% on the day at 111.90.

After the data released by the Federal Reserve Bank of New York showed that the Empire State Manufacturing Index missed the market expectations with 19 in September, the US Dollar Index extended its daily losses and fell to a fresh session low of 94.45. As of writing, the index was losing 0.5% on the day at 94.47. Furthermore, the JPY gathered strength as a safe-haven following the Bloomberg article that claimed the White House could announce a 10% tariff on $200 billion worth of Chinese imports as early as today. 

Meanwhile, the 10-year T-bond yield, which rose to its highest level in nearly 4 months at 3.022% earlier in the session, reversed its course in the last hour and eased below the critical 3% mark to make it difficult for the greenback to show resilience against its rivals. 

On Wednesday, the BoJ is going to announce its monetary policy decisions and Governor Kuroda will be appearing at a press conference. Ahead of that, the markets' dollar valuation and the risk perception could continue to drive the pair's action. In a recently published report, "we think the Policy Board is highly unlikely to conclude that economic activity and prices have changed enough to justify a guidance revision,” Nomura analysts argued.

Technical levels to consider

The initial resistance for the pair aligns at 112 (psychological level) ahead of 112.60 (Jul. 20 high) and 113.15 (Jul. 19 high). On the downside, supports could be seen at 111.35 (20-DMA), 110.80 (100-DMA) and 110 (psychological level).