Daily Market Recap - USDJPY

The USDJPY is trading lower on Wednesday as markets react to the mixed economic data from Japan and signs of weakness in the US dollar. The pair initially edged higher during the Asian session but pulled back sharply at the start of the US session as risk-off sentiment made a return to the markets.

Looking at the Japanese economic figures released today, the Tankan manufacturing index came in below expectations at -34 suggesting the industry is likely still operating significantly below capacity. Capital expenditures in the country are rising however, with the Q2 figure standing at 3.2 percent versus expectations of 2.1 percent, an encouraging sign of economic recovery going forward.

Over to the US economic data, the highly anticipated ADP employment change report highlighted lower than expected job growth in the country, with slightly over 2 million newly employed versus expectations of 3 million. Manufacturing PMIs have posted large gains over the previous readings, notably the ISM manufacturing PMI for June now standing at 52.6 compared to 43.1 in May. The figures are encouraging but we will likely need to wait for further news on the second wave of COVID-19 infections in the US to better estimate the pace of the economic recovery.

From a technical perspective, the USDJPY has formed a bearish engulfing candle on the daily chart suggesting an extension in the dip may be expected in the coming sessions. The immediate downside channel to be tested is the 107.247 support level. After that, should selling momentum be strong enough, the psychological 107 marks would be the next point to look at. Short term momentum remains slightly in favor of the bulls based on the performance of the USDJPY in the past 2 weeks though the bigger picture still points to a USDJPY under pressure.

(Chart Source: Tradingview 01.07.2020)

As uncertainty brews in the US over the likelihood of the government re-imposing lockdown restrictions after a surge in new COVID-19 cases, the Japanese yen should continue to attract buying demand for its value as a safe haven currency, particularly so if Japanese and Asian economic data, in general, continue to point in the right direction.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.