• USD/JPY remains under intense selling pressure on Thursday and slides to a one-month low.
• The selling bias picks up pace after the US Q2 GDP report confirmed a technical recession.
• Bearish traders now await a break below the 61.8% Fibo. level support, around mid-134.00s.

The USD/JPY pair witnessed heavy selling on Thursday and extends the previous day's post-FOMC decline from the 137.45 region. This marks the second successive day of a negative move and drags spot prices to a one-month low, around mid-134.00s during the early North American session.

The latest leg down follows the disappointing release of the Advance US GDP report, which showed that the world's largest economy contracted by 0.9% annualized pace during the second quarter. This comes after the 1.6% decline during the January-March period and confirms a technical recession.

The data adds to worries about an economic downturn and reaffirms expectations that the Fed could slow the pace of rate hikes. This is evident from a fresh leg down in the US Treasury bond yields, which results in the narrowing of the US-Japan rate differential and is benefitting the Japanese yen.

On the other hand, the US dollar surrenders a major part of its intraday gains in reaction to the weaker data. This is seen as another factor contributing to the heavily offered tone surrounding the USD/JPY pair, taking along some short-term trading stops near the 135.00 psychological mark.

From a technical perspective, the overnight sustained weakness below the 200-period SMA on the 4-hour chart was seen as a fresh trigger for bears. A subsequent fall below the 50% Fibonacci retracement level of the 131.50-139.39 strong move up on Thursday validates the negative outlook.

That said, bearish traders might now wait for some follow-through selling below the 134.50 region, or the 61.8% Fibo. level support, before placing fresh bets. A convincing break below should pave the way for an extension of the recent corrective slide from the 24-year high.

On the flip side, any meaningful recovery attempt might now confront resistance near the 135.00 mark. This is followed by the 50% Fibo. level, around the 135.45 region, above which a bout of short-covering has the potential to lift the USD/JPY pair back towards the 135.90-136.00 area.

The latter is closely followed by the 200-period SMA on the 4-hour chart, around the 136.15 region, and mid-136.00s (38.2% Fibo. level). Some follow-through buying would suggest that the downfall has run its course and shift the bias back in favour of bullish traders.

USD/JPY 4-hour chart

Key levels to watch