USD/JPY Price Analysis: Hangs near one-week low, around 200-hour SMA/23.6% Fibo. confluence

• USD/JPY edged lower for the second straight day and dropped to a one-week low on Tuesday.
• The risk-off mood benefitted the safe-haven JPY and exerted pressure amid sliding US bond yields.
• The technical setup favours bearish traders, though the Fed-BoJ policy divergence should limit losses.

The USD/JPY pair witnessed some selling for the second successive day and dropped to a one-week low during the early part of trading on Tuesday. The pair remained depressed through the mid-European session and was last seen trading just above the mid-127.00s.

The prevalent risk-off mood benefitted the safe-haven Japanese yen and exerted downward pressure on the USD/JPY pair. Bearish traders further took cues from retreating US Treasury bond yields, though sustained US dollar buying should help limit any further losses.

From a technical perspective, the USD/JPY pair was flirting with the 23.6% Fibonacci retracement level of the 121.28-129.41 parabolic rise. The said support coincides with the 200-hour SMA, which, in turn, should now act as a pivotal point for short-term traders.

Given the overnight break through an ascending trend-line extending from the monthly low, the bias seems tilted in favour of bears. Hence, some follow-through selling would set the stage for an extension of the corrective pullback from the 129.40 area, or a fresh 20-year high.

The USD/JPY pair might then accelerate the fall and turn vulnerable to weaken further below the 127.00 round-figure mark. The downward trajectory could then get extended and drag spot prices to the next relevant support near the 126.35 area, or the 38.2% Fibo. level.

On the flip side, the 128.00 mark now seems to act as an immediate resistance ahead of the ascending trend-line support breakpoint, around the 128.20 zone. Sustained strength beyond will suggest that the corrective slide has run its course and pave the way for additional gains.

That said, any meaningful upside is likely to remain capped near the 129.00 mark ahead of the Bank of Japan policy decision on Thursday. Nevertheless, the BoJ-Fed policy divergence should continue to act as a tailwind, suggesting that the downtick could be seen as a buying opportunity.

USD/JPY 1-hour chart

Key levels to watch