USD/JPY drops to its lowest level in over a year following the breach of key support levels.

USD/JPY dropped to its lowest level since July 2023 in early Monday trading, as a fresh downward move broke key support levels at 140.77 (the weekly cloud base) and 140.48/25 (the 61.8% Fibonacci retracement of the 127.22/161.95 rally and the December 28 low), falling below the critical psychological support at 140.

The U.S. dollar remains under pressure due to strong expectations of a Fed rate cut this week, with a widely anticipated 25 basis point reduction. However, the possibility of a more aggressive 50 basis point cut still lingers, adding to the dollar’s weakness.

Meanwhile, signals from Japanese policymakers hinting at further rate hikes, even though the BoJ is expected to hold steady during Friday’s policy meeting, highlight the widening gap between the two central banks’ monetary policies, providing additional support to the yen.

Technically, the outlook remains bearish on both daily and weekly charts, suggesting the pair may continue to decline. A daily close below the 140 level would confirm further downside potential, exposing targets at 137.23 (July 2023 low) and 135.41 (the 76.4% Fibonacci retracement).

However, oversold conditions on the daily chart could present short-term resistance to a deeper decline, possibly leading to some consolidation or a limited correction before the next leg lower.

The broken weekly cloud base has turned into a strong resistance at 141.15, followed by the falling daily Tenkan-sen at 142.56, which should ideally cap any rebounds.

Res: 140.00; 140.48; 141.15; 141.76;
Sup: 139.00; 138.06; 137.23; 135.41