USD/JPY drops in tandem with Nikkei, weakest since Nov 2016

The bears regained control after a brief recovery seen in the USD/JPY pair, now pushing the rates southwards in a bid to print the lowest levels since November 2016.

USD/JPY headed to 107.00

The spot is seen replicating the moves witnessed in Asia a day before, as risk-aversion seeps back into markets, with the Asian equities crumbling again alongside oil prices. Japan’s benchmark index, the Nikkei 225 sinks nearly 0.90% to 21,053 points while Treasury yields dive across the curve, in turn adding to the downslide.

The major also faces a double whammy from broad-based US dollar weakness, as the buck tracks Treasury yields lower amid a sense of caution ahead of the key US CPI figures, which are likely to shape up the Fed’s rate hike outlook this year.

Meanwhile, the JPY markets appear to have shrugged off the disappointment in the details of the Japanese Q4 GDP report, which showed that the preliminary Q4 GDP arrived at 0.1% q/q vs. 0.2% expected.

Markets remain focused on the upcoming US macro releases, including the CPI and retail sales numbers, with analysts at Nomura expecting “core CPI to increase at a more moderate pace in January after a steady gain of 0.239% m-o-m in December.”

USD/JPY levels to watch

Jim Langlands at FXCharts, notes, “US$Jpy did manage to bottom out ahead of the 2017 low at 107.32, ahead of the minor bounce, and this remains the major level of support to watch. A downside break though, would then see little support until the 200 MMA at 105.70, so it could be a fairly rough for the dollar if the CPI underperforms.”