USD/JPY Price Analysis: Plummets to fresh monthly low around 127.00, below 38.2% Fibo.

• A combination of factors prompted aggressive selling around USD/JPY on Thursday.
• The prevalent risk-off environment provided a strong boost to the safe-haven JPY.
• A steep fall in the US bond yields weighed on the USD and added to the selling bias.

The USD/JPY pair struggled to capitalize on its early positive move and witnessed a turnaround from the 129.00 neighbourhood on Thursday. The sharp intraday fall - marking the second successive day of a negative move - dragged spot prices to a fresh monthly low, around the 127.00 mark during the early North American session.

Growing worries about softening global economic growth continued weighing on investors' sentiment and triggered a fresh wave of a risk-aversion trade. This was evident from a sea of red across the equity markets, which boosted demand for the traditional safe-haven Japanese yen and exerted heavy downward pressure on the USD/JPY pair.

The anti-risk flow led to a steep decline in the US Treasury bond yields, which prompted aggressive US dollar selling and further contributed to the heavily offered tone around the USD/JPY pair. The downward trajectory could further be attributed to some technical selling on a sustained break below the 128.00 round-figure mark.

Subsequent weakness below the 127.50 area (previous monthly low), coinciding with the 38.2% Fibonacci retracement level of the 121.28-131.35 rally, could be seen as a fresh trigger for bearish traders. Some follow-through selling below the 127.00 round-figure mark will reaffirm the negative outlook and pave the way for further losses.

The USD/JPY pair might then accelerate the fall towards testing the next relevant support marked by the 50% Fibo. level, around the 126.25 region, before eventually dropping to the 126.00 handle. The corrective slide could further get extended towards the key 125.00 psychological mark, which should act as a near-term base for spot prices.

On the flip side, attempted recovery back above the 127.50 support breakpoint (38.2% Fibo. level) could now be seen as a selling opportunity. This, in turn, should cap the USD/JPY pair near the 128.00 mark, which is followed by resistance near the 128.30 region. A convincing breakthrough the latter should allow bulls to aim back to reclaim the 129.00 mark.

USD/JPY 4-hour chart

Key levels to watch