USD/JPY is under pressure and in 5 month lows
- The yen has picked up a safe haven bid, fundamentally offered on the Federal Reserve.
- 107.27 61.8% Fibonacci taken out, eyes on 105.87.
In a tight range to start the week, USD/JPY is flat around 107.30 in Tokyo, up from 107.05 from Friday's business but below 107.75 highs. The yen has picked up a safe haven bid and flows out of the greenback following a switch to a new easing bias at the Federal Reserve is likely to keep the pair under pressure. Stock markets were also on the back foot on Friday, weighing on the pair following a disappointment in US data. The Markit US composite PMI came in slightly below the previous read (at 50.6 from 50.9 in May), whilst the manufacturing index eased to 50.1 (from 50.5 in the month prior).
"Within the manufacturing data however, new orders increased by 1.1pts to 50.8 and new export orders rose 1.5pts to 50. Those forward leading indicators suggest that manufacturing might stabilise a bit near-term, despite ongoing trade uncertainties. While, the services index also fell, all sub-components were up. The output price index rose to 51.5, while input prices rose to 52.8," analysts at ANZ Bank explained.
- Meanwhile, Fed governor Brainard said that downside risks argue for a softening in the rate path.
- Minneapolis Fed president Kashkari admitted he dissented in favour of a 50bp rate cut at last week’s on-hold decision (as a non-voter, his name was not in the statement).
- St. Louis Fed president Bullard said his (known) dissent was in favour of a 25bp ‘insurance’ cut.
Meanwhile, markets are pricing 32bp of easing at the July meeting, with a total of four cuts priced by mid-2020. On Friday, U.S. 10yr treasury yields climbed from 2.00% to 2.07%. 2yr yields remained heavy, ranging between 1.75% and 1.80%.
Analysts at Commerzbank explained that USD/JPY is under pressure and in 5 month lows:
"Following its rejection from the 20 day ma at 108.48, the market stays immediately offered below the near term downtrend at 108.67. Our initial target of the 107.27 61.8% Fibonacci retracement, has easily been surpassed and we look for losses to the 78.6% retracement at 105.87. Above the near term downtrend, minor resistance comes in at the 110.84 April 10 low and the 111.18 200 day moving average. These guard the 2015-2019 112.20 downtrend."
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