USD/JPY drops under key 122.00 support

<p>With the US dollar in pullback mode against most major currencies on Wednesday, USD/JPY broke down below a prolonged trading range consolidation that has been […]</p>

With the US dollar in pullback mode against most major currencies on Wednesday, USD/JPY broke down below a prolonged trading range consolidation that has been in place for the past month, and tentatively dropped below a major support level at 122.00.

This support level is also only slightly above where the 50-day and 200-day moving averages have just converged. Wednesday’s drop also broke down below a key uptrend support line that extends back to the mid-October hammer candle low near 118.00.

The current dollar pullback occurs just one week ahead of the pivotal Fed announcement on Wednesday of next week, when the long-awaited decision as to whether or not there will be a 2015 interest rate hike will finally arrive. Financial markets continue to hold broad-based expectations that the Fed will opt to raise rates, thereby providing some support for the US dollar, but much of those expectations have already been priced into the strengthening greenback in the past several weeks.

The USD/JPY tumble on Wednesday was also helped along by falling European stock markets, including the FTSE and DAX, as well as struggling US equity markets.

USD/JPY Daily Chart

 

In the event of a sustained drop below 122.00 support as a result of further stock market volatility and a further potential pullback in the US dollar, the next major downside price objective is at the 120.00 psychological support level. In the event of a bounce from the noted 122.00-area support on a dollar rebound ahead of next week’s Fed decision, upside resistance resides around 123.75, the high of the past month’s trading range, followed by the key 125.00 resistance level.

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