USD/JPY drops to 113.70 as Wall Street suffers heavy losses

  • Risk aversion helps JPY gather strength.
  • US Dollar Index looks to end the week above 96.50.
  • PPI rises more than expected in the U.S.

Despite the broad-based USD strength, the USD/JPY pair lost its traction in the second half of the day and fell below the 144 mark as the safe-haven flows helped the JPY find demand ahead of the weekend. As of writing, the pair was losing 0.3% on the day at 113.72.

Earlier today, the data published by the U.S. Bureau of Labor Statistics showed that the Producer Price Index in October rose 0.6% and 2.9% on a monthly and yearly basis, respectively, and both data beat the market expectations. The US Dollar Index, which staged a decisive rebound on hawkish Fed remarks on Thursday, preserved its momentum and touched a fresh weekly high of 96.92 today before going into a consolidation phase. At the moment, the index is up 0.17% on the day at 96.80.

On the other hand, the sharp drop witnessed in crude oil prices and disappointing macroeconomic data releases from China weighed on the market sentiment on Friday and caused global equity indexes to come under pressure. After starting the day on a weak note, both the Dow Jones Industrial Average and the S&P 500 extended their slide and were last down 0.7%, and 0.9%, respectively. 

With no other macroeconomic data releases left in the remainder of the week, the risk perception is likely to stay as the main driver of the pair's price action.

Technical levels to consider

The initial support for the pair aligns at 113.60 (daily low) ahead of 112.90 (Nov. 7 low) and 112.00 (psychological level/100-DMA). On the upside, resistances could be seen at 114 (daily high), 114.55 (Oct. 3 high) and 115 (psychological level).

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