USD/JPY daily chart
The pair is testing levels last seen in July of last year. A drop below 140.00 today would certainly threaten to take it below last December’s lows on the daily chart. Also, from a psychological standpoint, a solid drop below 140.00 would give the sellers a significant advantage at the start of the new week.
But again, given the moves we're seeing, it's all going to have to be justified by the Fed later this week.
Market participants are getting aggressive and are now pricing in about a 59% probability of a 50bps cut, a big jump from the roughly 21% forecast immediately following the US CPI report last Tuesday. This article by Timiraos may have something to do with this, but we must not forget that the market also has the ability to try and scare the Fed into a decision.
Returning to USD/JPY, the movement here is also heavily linked to the bond market. The 10-year Treasury yield is at 3.64%, remaining near its lowest level since June of last year amid a decline since last week. Meanwhile, the 2-year Treasury yield is attracting more attention as it is currently at around 3.55% and threatening the 2023 low.
US 2-Year Treasury Yield (%) Monthly Chart
This will keep all eyes on the Fed this week and keep the broader market on edge.
