USD/JPY: Bears seeking lower grounds to test below 107.50s

USD/JPY is steady in the Tokyo open with thin trade expected following an explosive session overnight and with a lack of liquidity in Asia due to the Chinese holidays. USD/JPY tumbled on the back of a surprise spike to the downside in US PMIs which have reminded investors of the fragileness of the global economic backdrop, fuelling a flight to safety and the Yen was a top performer. 

USD/JPY falling from 108.45 to 107.70 on the back of the US ISM manufacturing survey

There was an initial burst to the upside from the bulls on London's trade, but that was short-lived with USD/JPY falling from 108.45 to 107.70 on the back of the US ISM manufacturing survey that failed to rebound in Sep, instead falling to a 10-year low of 47.8 (prior 49.1, est. 50.0). US stocks sank and, consequently of the data, the US yields also dropped.

"The US 2-year Treasury yields plunged from 1.65% to 1.54% in response to the ISM manufacturing data, the 10yr yield from 1.72% to 1.62%. Markets are pricing 19bp of easing at the 31 October meeting and a terminal rate of 1.08% (vs 1.88% currently)," analysts at Westpack explained and expanded on the data as follows:

"The slide was evident in most areas, with a notable fall in employment to 46.3 (prior 47.4), and new export orders sliding to 41.0 (prior 43.3), with sluggish new orders of 47.3 (prior 47.2). Notable quotes from the report: “Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019”and “Comments from the panel reflect a continuing decrease in business confidence.”"

USD/JPY levels

"The USD/JPY has broken below its 20 and 100 SMA in the 4 hours chart, holding barely below the indicators that maintain their bullish slopes. Technical indicators in the mentioned chart have entered negative territory, losing their bearish strength but still heading south, in line with another leg lower, particularly if the pair breaks below 107.55, a Fibonacci level and the immediate support," Valeria Bednarik, chief analyst at FXStreet argued.