Home Forex News USD/JPY Drops From 3-Week Highs On Yen Strength

USD/JPY Drops From 3-Week Highs On Yen Strength

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  • Improving Manufacturing Activities
  • Tankan Manufacturing Report
  • Risk Aversion Talk

The USD/JPY pair retreated from three-week highs as the Yen strengthened across the board on better than expected economic releases. The pair started the week on a roll rallying past the 108 level as the Yen came under selling pressure amid a resurgent dollar.

Yen Resurgence

The pair has since dropped back to a key support level at the ¥107.50 level as the Yen continues to take advantage of weakness in the greenback.

Time                            : 07-01-2020

Pivot                           : 107.82

Technical View           : Long Above 108.02

Target                         : 108.22 next 2 targets are 108.51 and 108.78

Comments                  : Neutral

Last Price                    : 107.53

Technical View           : Short below 107.62

Target                         : 107.42 next 3 targets are 107.31, 107.14 and 106.76

The catalyst driving the Yen higher against other major catalysts is a confirmation that the manufacturing sector is doing much better, amid the disruptions triggered by COVID-19. The PMI data from Markit rose to 40.1 from 37.8 signaling substantial improvements despite being below the accepted 50 levels.

Amidst the improvement, the contraction is being felt as firms continue to operate below full capacity due to slow-moving order books. In return, the labor market has taken a significant hit, with unemployment levels edging higher.

Order books, employment, and backlogs declined substantially in June, indicating the dire situation Japan’s economy finds itself in. However, business confidence has started ticking higher conversely, offering support to the Yen, a development that continues to send the USD/JPY pair lower.

The Yen also strengthened despite the latest Tankan Manufacturing index indicating a contraction of -34 in the second quarter compared to a decline of -8 last year. The worst affected industries remain motor vehicles shipbuilding, iron, and steel.

U.S Dollar Outlook

Standing in the way of the Yen registering further gains against the Dollar is a spike n coronavirus infection in the U.S likely to fuel risk aversion in the market. Cases of COVID-19 rose by more than 47,000 on Tuesday with the head of the National Institute of Allergy and Infectious Disease Dr. Anthony Fauci. It warned that daily cases are at risk or are reaching record highs of 100,000.

A spike in coronavirus cases is likely to result in a spike in risk aversions that could see traders scampering for safety havens such as the U.S dollar. A strengthened greenback could send the USD/JPY pair higher from current lows.

Later in the day, traders await the release of U.S PMI data and ISM manufacturing Data likely to sway trader’s sentiments on the Dollar conversely the USD/JPY.

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