USD/JPY slumps to mid-109s as 10-year US T-bond yield drops 4% today

  • Wall Street extends slide as risk-aversion continues to dominate.
  • 10-year US T-bond yield drops below 2.3% for the first time since October 2017.
  • US Dollar Index drops below 98.

The bearish pressure surrounding the USD/JPY pair gathered strength in the American trading hours and dragged the USD/JPY pair to a weekly low of 109.50. As of writing, the pair was down 0.7% on the day at 109.55.

Heightened geopolitical tensions after U.S. Secretary of State Mike Pompeo said the Chinese tech-giant Huawei was deeply tied to the Communist Party and added that he believed more U.S. companies would cut ties with them weighed on the market sentiment in the second half of the day. 

Major equity indexes in the U.S. started the day sharply lower and continued to push lower while the 10-year US Treasury bond yield dropped below 2.3% to touch its lowest level since October of 2017 to reaffirm the intense flight-to-safety in the markets, which ramps up the demand for the JPY. Additionally, the fall in the bond yields also seem to be hurting the greenback. After rallying to its highest level in two years at 98.37 earlier today, the US Dollar Index lost its traction and erased all of the gains it posted this week. At the moment, the index is down 0.25% on a daily basis at 97.85.

Earlier today, the preliminary report published by the IHS Markit showed that the service sector and the manufacturing sector are both expected to expand at a much slower pace than expected in May to put additional weight on the dollar's shoulders.

In the early trading hours of the Asian session on Friday, inflation data from Japan will be looked upon for fresh impetus.

Technical levels to watch for

The pair could face the next support at 109.35 (May 16 low) ahead of 109 (psychological level/May 13 low) and 108.50 (Jan. 31 low). On the upside, resistances are located at 110 (psychological level), 110.30 (20-DMA) and 110.80 (100-DMA).

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