USD/JPY tumbles under 135.00 after weaker than expected US data

content provided with permission by FXStreet

  • USD/JPY drops almost two hundred pips on Thursday.
  • US S&P Global PMI falls to monthly lows
  • US yields collapse as recession fears increase.

The USD/JPY dropped further following the release of US economic data and bottomed at 134.21, reaching the lowest level in six days. Bonds are rising across the globe, supporting the Japanese yen.

The pair then rebounded modestly, and it is hovering around 134.60/70, down more than 200 pips from Wednesday’s multi-year high. Below 134.40, the next support is seen at 133.80.

Yen gains as growth outlook worsen

Earlier on Thursday, Eurozone PMIs came in below expectations and triggered a rally in European bonds and helped the yen. More recently, the US S&P Global PMI also showed a significant decline in activity. Both the manufacturing and service numbers fell to the lowest level in months at 52.4 (consensus: 56) and 51.6 (53.5), respectively. Despite the worrying data, Wall Street is rising, with the Nasdaq up 1.25% and the S&P 500 climbs 0.63%.

The report added to concerns about the economy and weighed on monetary policy expectations. The US 10-year yield fell to 3.00%, the lowest in two weeks; just on Friday, it was trading near 3.50%, while the 30-year fell to 3.15%.

The US lost momentum across the board after the report. The DXY erased daily gains and pulled back to 104.20/30. The dollar’s losses against the yen are offset by a slide of EUR/USD as German bonds have the best day in years.

Fed Chair Powell is testifying again at Congress. Regarding concerns about the economic outlook, he mentioned is possible to have a strong labor market while curbing inflation. Fed’s Bowman said another 75 bps rate hike will be appropriate in July.

Technical levels