• Sovereign bond yields drop after central bank meetings.
• Risk appetite deteriorates after Wall Street’s opening bell.
• USD/JPY remains above key technical area above 128.00.

The USD/JPY dropped further on Thursday and bottomed at 128.07, reaching the lowest level in two weeks. It remained above 128.00 and trimmed losses after US markets opened.

The move-off lows took place amid a deterioration in market sentiment that offered support to the greenback across the board. The pair is back above 128.50, still down for the day, on its way to the third consecutive daily loss.

Bonds rally, yen benefits

The Bank of England and the European Central Bank both raised key interest rates by 50 basis points as expected. On Wednesday, the Federal Reserve raised it rate by 25 basis points. Central bankers showed more optimism in the economy. Powell signalled at more rate hikes to bring the rate to “appropriately restrictive”. The ECB announced it intends to raise by 50 bps in March.

Following the announcements, sovereign bonds rose, favoring the Japanese Yen across the board. The US 10-year yield fell to as low as 3.33%, the lowest in two weeks, before rebounding to 3.37%. The German 10-year yield stands at 2.10%, down 6.70% for the day. The 10-year UK bond yields drops 5.95% at 3.09%.

Despite USD/JPY moving off lows, the Yen is trading at daily highs across the board. The US Dollar has risen sharply during the last hours, erasing most of the FOMC losses.

US data was offset by central banks on Thursday but on Friday the Non-farm payroll report is due and will be watched closely. Data released on Thursday showed Initial Jobless Claims fell unexpectable to 183K, the lowest level since April. Factory Orders rose 1.8% in December, below the expected 2.2%.

Levels to watch

The USD/JPY was able to hold above 128.00, a key technical level. The US dollar needs to regain the 129.10 area in order to gain support. Above the next resistance stands at 129.80 followed by the weekly high at 130.55.

A consolidation under 128.00 would increase the bearish pressure, exposing the next support seen at 127.55.

Technical levels