USDJPY Forecast: The Yen's Drop Approaches Dec 2023 Low

• The ISM Services PMI today is set to boost or hold USDJPY’s drop
• The US Dollar Index is retesting March 2024 lows
• USDJPY Technical Analysis

Following a bearish streak of US economic indicators, from the leading ISM Manufacturing PMI to the non-farm payrolls, bearish dominance has been evident on the US Dollar index and USDJPY charts. Today's ISM Services PMI, which has dropped from a 9-month high to a 4-year low, is expected to introduce further volatility to the charts.

From a technical perspective, the extended momentum suggests a potential reversal is on the horizon. Additionally, the safe-haven demand driven by geopolitical tensions, particularly the escalating war potential in the Middle East, may also influence market dynamics in the near term.

Technical Outlook:

USDJPY Forecast: DXY – 3 Day Time Frame - Log Scale

Source: Tradingview

Retesting March 2024 lows, the US dollar index could face a potential support at the 102 border, which aligns with the trendline connecting the lows of July 2023 and December 2023. A further break to the 102 border could add further bearish pressures down towards the 101 zone.

A reversal from the 102 zone can retest the 103.80-104 zone and support a bullish reversal on the USDJPY chart.

USDJPY Forecast: USDJPY – Daily Timeframe – Log Scale

Source: Tradingview

The steep decline of the USDJPY pair is currently facing the significant December 2023 low at 140.25, which aligns with the 0.618 Fibonacci retracement of the 2024 uptrend. With momentum overstretched on the oversold side, the 140-price zone is acting as a potential support level for the ongoing 5-week drop.

Should the pair fall further below 140, additional support is anticipated around the 137 level.

Conversely, rebounds could see the pair retesting levels 146.40 and 148.60.

--- Written by Razan Hilal, CMT