USDJPY Drops Below Major Support

Should the pair close below 131 on a daily chart, the bull market could be over, with another leg lower possible.

Pelosi Provoces China

Risk appetite worsened notably as Nancy Pelosi, the speaker of the US House, was expected to go to Taiwan later in the session. China claims Taiwan as part of its territory.

The arrival of the highest-ranking American official in recent memory would provoke “severe consequences” from Beijing, escalating tensions between the world’s two economic heavyweights.

The USDJPY pair is now testing the 100-day moving average near 130.30; if it does not hold, it could be another clear bearish signal. In that case, we might see a quick drop toward May lows at 126.50.

The short-term chart seems oversold, however, thus offering a possible bounce from the mentioned support.

On the other hand, should bulls reappear, they need to push the USD back above 132 to cancel the immediate bearish momentum. That could happen only if US bond yields start heading higher.

Since JOLTS Job Openings will be the only data point on the US economic docket, investors will keep an eye on political developments. Presidents of the Chicago Fed Charles Evans and the St. Louis Fed James Bullard will also speak later in the day.