USD/JPY pierces below 112 as Wall Street extends fall

  • USD/JPY looks to end the 7th day in a row in the red.
  • US stocks suffer heavy losses.
  • US Dollar Index stays dangerously close to the 95 mark.

After spending the majority of the day in a tight range above the 112 handle, the USD/JPY came under a renewed pressure in the late NA session and fell to a fresh multi-week low of 111.82 as major equity indexes in the U.S. continued to slide. As of writing, the pair was trading a couple of pips below 112, losing 0.25% on a daily basis.

Earlier today, the pair failed to extend its recovery with risk aversion taking over following comments from US President Trump, who once again criticized the Fed's tightening policy by saying the central bank was too aggressive with rate hikes and was making a big mistake. Additionally, the disappointing inflation report, which showed that the annual CPI eased to 2.3% in September from 2.7% to miss the analysts' estimate of 2.4%, forced the greenback to weaken against its rivals.

Although the US Dollar Index staged a modest recovery after testing the 95 mark at the beginning of the NA session, it failed to preserve its momentum and reversed its course. As of writing, the index was down 0.45% on the day 95.04.

Finally, Wall Street suffers heavy losses for the second straight day to provide an additional boost to safe-havens such as the JPY. At the moment, the Dow Jones Industrial Average and the S&P 500 were down 1.9% and 1.2%, respectively.

Technical outlook via FXStreet Chief Analyst Valeria Bednarik

The short-term picture for the pair indicates that the risk remains skewed to the downside, as in the 4 hours chart, it remained below its 100 and 200 SMA, with this last offering an immediate resistance in the 112.30 region, as the pair has been unable to advance beyond it since the day started. Technical indicators in the mentioned chart have corrected from extreme oversold levels but quickly resumed their declines, now accelerating  their downward slopes within extreme levels. The current 111.90 region is a strong static support,  and renewed selling interest here favors an extension toward the 111.20 price zone. The bearish pressure could ease on a recovery above 112.60, quite unlikely at this point.

Support levels: 111.90 - 111.55 - 111.20.

Resistance levels: 112.35 - 112.60 - 113.00.

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