• The USD/JPY is nearing the 143.70 level after a 1.10% downward shift en route toward the 200-day SMA.
• Federal Reserve's latest hint at three potential rate cuts in 2024 signifies dovish forward guidance, negatively impacting the dollar.
• During the press conference, Powell

In Wednesday's session, the USD/JPY pair witnessed a downward journey, plunging to 143.70, driven by the speculation surrounding the Federal Reserve's anticipated rate cuts.

In December’s monetary policy statement, the Federal Reserve left rates unchanged at 5.25%-5.50% and anticipated making three 25-basis-point reductions in 2024. Although not as deep or numerous as the market had previously anticipated, it significantly narrows the discrepancy between investor expectations and the Fed's prior rate prediction, which was cheered by markets fuelling risk-on flows.

During the press conference, Powell was seen as cautious. He recognized that inflation is on its path to reaching the 2% target but is still high and that more tightening will be considered if data justifies it. Regarding cutting rates in early 2024, he refrained from committing to early easing as policymakers didn’t want to take the possibility of further hikes off the table.

As a reaction, US bond yields are falling. The 2-year rate fell to 4.50%, while the 5-year and 10-year yields stand at 4.05% and 4.07% respectively. This directly impacts the value of USD as when yields rise; it tends to make the Greenback gain interest and vice-versa.

USD/JPY levels to watch

The daily chart presents a bearish prospect for the pair, as suggested by the indicators. The Relative Strength Index (RSI) has taken a nosedive into negative territory, showing a negative slope. This generally signifies that the sellers currently have the upper hand, exerting downward pressure on the pair.

The Moving Average Convergence Divergence (MACD) further bolsters this scenario. Rising red bars in the MACD Histogram reveal a strengthening selling momentum. The momentum seeming to tilt towards the sellers becomes more apparent when noting the histogram, implying a bearish market sentiment.

However, the position of the pair relative to its Simple Moving Averages (SMAs) presents a slightly more complex picture. While the pair is trading below the 20 and 100-day SMAs, emphasizing the shorter-term bearish momentum, it remains above the long-term, 200-day SMA. This means that the bulls, despite recent setbacks, continue to exert influence over the pair in the longer-term horizon.

Support Levels: 143.00, 142.80, 142.40 (200-day SMA)
Resistance Levels: 144.0, 144.50, 145.00.

USD/JPY daily chart