Furthermore, the narrowing of the US-Japan rate differential, led by the ongoing steep decline in the US Treasury bond yields in the wake of the Federal Reserve's hints of a pause to interest rate hikes, is seen driving flows towards the JPY. That said, a strong broad-based US Dollar (USD) rally lends some support to the USD/JPY pair and helps limit any further losses, at least for the time being.
From a technical perspective, the overnight sustained break and acceptance below the 61.8% Fibonacci retracement level of the January-March rally could be seen as a fresh trigger for bearish traders. Moreover, oscillators on the daily chart are holding deep in the negative territory and are still far from being in the oversold zone, which, in turn, supports prospects for a further depreciating move.
Hence, any further recovery move is more likely to attract fresh sellers around the 131.00 round-figure mark. This should cap the USD/JPY pair near the 131.30 region, or the 61.8% Fibo. level. That said, some follow-through buying could trigger a short-covering move and lift spot prices to the 132.00 mark. The momentum could get extended towards the 132.50 area, or the 50% Fibo. level.
On the flip side, the daily swing low, around the 129.65 region, now seems to protect the immediate downside, below which the USD/JPY pair could fall to the 129.00 mark. The next relevant support is pegged near the 128.55-128.50 zone, below which spot prices could slide towards the 128.00 round figure and aim to challenge the YTD low, around the 127.20 region touched in January.
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