USD/JPY drops to one-month lows near 126.30 as US yields fall further

• Demand for bonds is on the rise amid a deterioration in the global economic outlook.
• US stocks drop on Tuesday boosting further the yen.
• USD/JPY breaks range and extends retreat from multi-year highs.

The USD/JPY ended with days of consolidation with a sharp decline on Tuesday. The pair broke under 127.00 and tumbled to 126.34, the lowest level in a month. It remains near the lows, under pressure amid risk aversion.

The decline of USD/JPY gained momentum on the back of a weaker US dollar, lower yields and as stocks in Wall Street turned red. The Dow Jones is falling 0.83% and the Nasdaq drops by 2.78%. The US 10-year yield stands at 2.73%, a four-week low while the 30-year is back under 3%.

Economic data from the US came in below expectations (PMIs and New Home Sales) and weighed on the greenback. The DXY is falling 0.37%, trading at 101.70, the lowest in almost a month.

Analysts at MUFG Bank, see the USD/JPY pair with a bearish bias, moving in the range 122.00/129.50 during the next weeks.  “The main risk to our bearish outlook for USD/JPY would be if global growth concerns eased in the month ahead. A pick-up in China growth could be one potential trigger. The upward impact on global yields, commodity prices and a potential stabilization for global equity markets should encourage a higher USD/JPY even if the USD weakens more broadly. Yen weakness would be more evident though against high beta commodity currencies.”

If the USD/JPY extends the decline, below the 126.30 support line, 126.00 is the next target followed by 125.75 (April 11, 12 high). A recovery now would face an immediate resistance at the 127.00/05 area. Above the next one might be seen at 127.60 and then comes a downtrend line at 128.30.

Technical levels