USD/JPY drops below 111.00 as markets doubt future rate hikes

The USD/JPY pair has extended losses to three-day low of 110.95 as the investors consider the possibility of the delay in the Fed rate hike beyond December. 

Inflation expectations drop, T-yield curve continues to flatten

Earlier this week, Fed’s Evans expressed concerns regarding inflation and said the next rate could be delayed until December. Meanwhile, oil sell-off is widely seen pushing headline CPI’s lower in the US and across the globe. 

The long-term inflation expectations in the US have hit a 8-month low this week and could decline further in response to oil price sell-off. That could force the Fed to delay its tightening. Furthermore, the flatter yield curve could be an advance indicator of a pronounced slowdown in the US economy. 

Hence, it is not surprising that the post-Fed rally in the USD/JPY has run out of steam at a high of 111.79. The currency pair formed a spinning top candle on Wednesday and has taken a hit in the Asian session today. A weak close today would confirm a bearish reversal. 

USD/JPY Technical Levels

The spot was last seen trading around 110.98. A break below 110.81 (June 9 high) would open up downside towards 110.70 (200-DMA) and 110.29 (50% Fib R of 108.80-111.79). On the other hand, breach of resistance at 111.08 (23.6% Fib R of 108.80-111.79) would expose 111.43 (session high) and 111.81 (100-DMA).