Yesterday’s US session bounce seems like a distant memory by now for USD/JPY traders. Overnight, the Bank of Japan left monetary policy unchanged, though the bank did downgrade its outlook for exports on the back of slower global economic growth. As my colleague Chris Tedder noted, however, “It seems the market was looking for an even more dovish statement and it’s not taking today’s subtle change in the view of the international economy that the bank will introduce more stimulus in the near-term.”
On the other side of the currency pair, the US dollar just suffered another setback in the form of the August retail sales report. Retail Sales rose just 0.2% last month, missing expectations of a 0.3% rise, and the “core” retail sales figure, which filters out volatile automobile purchases, also missed expectations at just 0.1% m/m vs. 0.2% anticipated. It is worth noting that the July retail sales report was revised up by 0.1% to 0.7% m/m, so the data wasn’t uniformly bad, but it is still far from showing a robust US consumer as the Fed heads into its critical monetary policy decision on Thursday.
Technical View: USD/JPY
As we noted above, yesterday’s half-hearted rally in USD/JPY quickly reversed in today’s Asian session, taking the unit to a fresh one-week low and critically, breaking below the rising trend line off the late August low. Today’s breakdown in USD/JPY was foreshadowed by a break in the corresponding bullish trend line on the 4-hour RSI indicator, strengthening bears conviction.
With rates below both this trend line and the key psychological level at 120.00, more downside is possible ahead of the Federal Reserve’s statement. The next meaningful level of short-term support comes in at the confluence of the 50% Fibonacci retracement and previous lows in the 118.80-119.00 zone, where buyers could emerge to support the unit later this week. Meanwhile, only a break back above the 120.00 level would shift the near-term bias back to neutral heading into Thursday’s marquee meeting.