USD/JPY keeps the red around 133.00 mark amid bank crisis fears, softer USD

The USD/JPY pair struggles to capitalize on the overnight late rebound from the 132.20 area, or a one-month low and attracts some sellers for the second successive day on Thursday. The pair, however, manages to rebound a few pips from the daily low and trades around the 133.00 mark during the early European session, still down nearly 0.40% for the day.

Despite the positive development surrounding the Credit Suisse saga, concerns about fresh turmoil in the global banking sector continue to drive haven flows towards the Japanese Yen (JPY) and exert pressure on the USD/JPY pair. The troubled Swiss bank announced that it will exercise an option to borrow up to $54 billion from the Swiss National Bank (SNB) to shore up liquidity. Investors, however, remain worried about a broader systemic crisis in the wake of the collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank. This is evident from the prevalent cautious market mood and benefits traditional safe-haven currencies.

Apart from this, a modest US Dollar weakness turns out to be another factor acting as a headwind for the USD/JPY pair, though the prospects for further policy tightening by the Federal Reserve help limit losses. Investors still expect the US central bank to deliver at least a 25 bps rate hike at its upcoming policy meeting on March 21-22. In contrast, the Bank of Japan (BoJ) is expected to stick to its dovish stance to support the fragile domestic economy. In fact, the incoming BoJ Governor Kazuo Ueda recently stressed the need to maintain the ultra-loose policy settings and said that the central bank isn't seeking a quick move away from a decade of massive easing.

The aforementioned fundamental backdrop warrants caution before placing aggressive bearish bets around the USD/JPY pair and positioning for an extension of last week's rejection slide from the 200-day Simple Moving Average (SMA). Nevertheless, the broader trend remains down and the pair is consolidating in a flat line after the March 15 sell-off. From a technical perspective this could indicate the formation of another bear flag continuation pattern most clearly seen on the 4hr chart, with a break and close on a 4hr basis below the 131.20 lows providing the confirmation for the next leg down. According to technical forecasting conventions such an extension could reach a target of 130.90, the 100% Fibo. extension of the length of the flagpole lower. 

Traders now look to the US economic docket, featuring the release of the usual Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, Building Permits and Housing Starts. Apart from this, the European Central Bank (ECB)-inspired volatility could provide a fresh impetus.

Technical levels to watch