• A steep fall in equities prompts some aggressive safe-haven buying.
• Renewed USD selling further accelerates the downward momentum.
• Technical studies point to an extension of the ongoing downfall.
The USD/JPY pair struggled to preserve early gains and has now drifted into negative territory for the fifth consecutive session.
A steep decline in the US equity markets boosted the Japanese Yen's safe-haven demand and was seen as one of the key factors behind the pair sudden collapse of around 45-50 pips in the past hour.
Adding to this, a fresh wave of US Dollar selling since the early North-American session, following today's uninspiring release of US PPI figures for September, further collaborated to the pair's heavily offered tone.
The pair tumbled to two-week lows but now seems to have stabilized near the 112.85-80 region, albeit a follow-through weakness, led by some fresh technical selling, remains a distinct possibility.
Hence, it would prudent to wait for a sustained move back above the 113.00 handle before confirming that the near-term selling pressure is already over and the pair is set to resume with its prior appreciating move.
As Valeria Bednarik, FXStreet's own American Chief Analyst writes: “The pair has lost the positive momentum seen late September, despite US government bond yields, soared to multi-year highs, something quite significant in terms of future trend. The soft tone of equities, undermined by political woes, add pressure on the pair.”
Technical outlook
Valeria further adds: “The 4 hours chart shows that the pair has been struggling for direction around a bullish 100 SMA since Monday, a sign that speculative interest is not sure on where to go next. Technical indicators in the mentioned chart, however, remain within negative levels, the Momentum directionless and the RSI recovering alongside price, currently at 44. The pair has no signs of an upcoming steeper recovery, as it would need to accelerate through 113.60 to enter bullish ground, while a break below 112.75 should skew the risk toward the downside.”
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