Analysis USD/JPY: correcting oversold conditions, still at risk of falling
|USD/JPY Current Price: 107.43
- Japan's Nikkei Manufacturing PMI fell to 49.5 in June.
- USD/JPY at risk of extending its decline to fresh yearly lows.
The USD/JPY pair is trading at around 107.40, recovering from a fresh multi-month low of 107.04. The strength of the Yen has triggered an alarm within Japanese authorities, leading to Japanese Vice Finance Minister Asakawa stating that they are watching the exchange range, and will voice concern if it moves in a way that cannot be explained by fundamentals. Such comments are quite common when the currency strengthens, and the market tends to ignore them. Weighing on the pair, the yield on the benchmark 10-year Treasury note fell to 1.97%, its lowest level since November 2016, before rebounding slightly, now at around 2.02%.
Equities are sharply up on mounting speculation central banks will enter a rate-cutting cycle, but economic and political concerns have not eased. The US and China will re-start negotiations this next week, but there are little hopes that they will reach a trade agreement. Running in parallel, tensions mount between the US and Iran, as this last said it downed a US military drone invading its air space. Meanwhile, macroeconomic data indicate that the global economic slowdown persists.
Japan released National Inflation, which came in as expected, failing to trigger action. The June preliminary Nikkei Manufacturing PMI disappointed with 49.5, fueling concerns about the country's economic health. Later today, the US will release the June preliminary Markit PMI and Existing Home Sales for May.
From a technical point of view, the USD/JPY pair is currently struggling with the 23.6% retracement of its latest slump, with the current recovery looking corrective, given that, in the 4 hours chart, technical indicators are barely recovering from oversold readings, lacking sufficient strength to confirm further gains ahead. In the same chart, moving averages continue heading lower above the current level, with the 20 SMA retaining a strongly bearish slope, now providing a dynamic resistance at around 107.95. Overall, the risk is skewed to the downside, although a break below 107.00 is needed to confirm a new leg lower.
Support levels: 107.00 106.65 106.30
Resistance levels: 107.70 107.95 108.20
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