USD/JPY drops to three-week low, below mid-114.00s after Russia’s attack on Ukraine

• USD/JPY came under intense selling pressure in reaction to escalating geopolitical tensions.
• Russia’s invasion of Ukraine boosted the safe-haven JPY and exerted downward pressure.
• A slump in the US bond yields further inspired bearish traders and added to the selling bias.

The USD/JPY pair continued losing ground through the early European session and dropped to a fresh three-week low, around the 114.40 region in the last hour.

The pair witnessed aggressive selling during the early part of the trading on Thursday and broke down of its overnight consolidation phase amid the worsening situation in Ukraine. Russian President Vladimir Putin authorized a special military operation in Donbas, while NATO confirmed an official invasion of Ukraine. This triggered a massive sell-off across the global equity markets, which boosted demand for the safe-haven Japanese yen and exerted heavy downward pressure on the USD/JPY pair.

In the latest developments, reports indicated that Russian forces are attacking the Ukrainian border around Belarus. Moreover, Ukraine border guards said that an attack is also coming from Crimea. US President Joe Biden called the attack unprovoked and unjustified and added that the US and its allies will impose severe sanctions on Russia.  This fueled worries about a further escalation in tensions between Russia and the West, which kept investors on the edge and underpinned the safe-haven JPY.

Bearish traders further took cues from a steep decline in the US Treasury bond yields, though a strong pickup in the US dollar demand might help limit losses for the USD/JPY pair, at least for now. The Russia-Ukraine saga seemed to have dashed hopes for a more aggressive policy response by the Fed to combat stubbornly high inflation. This, along with the global flight to safety, dragged the US bond yields lower and further contributed to the heavily offered tone surrounding the USD/JPY pair.

With the latest leg down, spot prices have moved well within the striking distance of the 100-day SMA support, currently around the 114.30 region. This is closely followed by the monthly swing low, around the 114.15 zone and the 114.00 mark. A convincing break below the latter will set the stage for a further near-term depreciating move for the USD/JPY pair. Traders now look forward to the Advance US GDP print for some impetus, though the key focus will remain on geopolitical developments.

Technical levels to watch