USD/JPY retreated on Tuesday from a key support level despite worst sell-off in Nikkei 225 amid uncertainty about emerging economies and China’s slow growth.

The pair is being traded around 101.28 at 08:47 GMT in Asia. Immediate support may be noted near 101.00 which is 50% fib level. A sustained move below 101.00 support zone may aggravate bearish trend hence targeting long term pivot zone that is around 99.50 – 100.00, bunch of support levels are sitting in near pivot zone.

On upside, resistance can be seen at 102.00 that is 38% fib level and psychological level ahead of 103.33 which is 23% fib level. A daily close above 103.33 may accelerate bullish momentum thus targeting 104.09 and 105.40.

On macroeconomic front, picture is certainly not good for USD/JPY. Japan’s Nikkei 225 Index – which is believed to have strong positive correlation with USD/JPY pair – extended losses today. The stock market has nosedived more than 14% since January 1^st.

Four factors are responsible for steep losses in Nikkei; China, world’s largest economy, continued slow pace of growth last year, moreover manufacturing activity has also slowed down in Asian nation, according to a recent HSBC Holdings survey. As China is the biggest trade partner of many emerging-market countries, so their currencies are prime target for this development.

Secondly, Fed stimulus reduction is causing decline in capital inflows to emerging economies and consequently depreciating their currencies. Third, obviously stronger Yen which tend to drag Nikkei lower as profits of companies come down with appreciating JPY. Fourth, whopping rise in Japanese stocks last year requires some meaningful correction before further upward move. These are several factors responsible for huge sell-off in Nikkei and in turn USD/JPY fall.

It is pertinent that US nonfarm payrolls and jobless data is scheduled for release on Friday, more tapering in stimulus is linked to outcome in labor market, so Friday reports will be of great importance.

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