USD/JPY hits 7-week lows under 110.00 and rebounds

The yen gained momentum across the board after the beginning of the American session. US equity prices moved off daily highs trimming gains and boosted the Japanese currency. USD/JPY dropped from 110.50 to 109.90, hitting the lowest level in seven weeks. The pair is trading at 110.20/25, around the same level it closed yesterday. 

USD not supported by data 

Economic data from the US likely weakened the US dollar against the yen. Today’s data is likely to be offset later on the week by US labor market numbers. 

 The ISM manufacturing index came in July in line with market expectation at 56.3 (vs 56.4) and below the 57.8 reading in June. “All the major components fell by 2-3 points, but they are at healthy levels (production and new orders both above 60). Employment is at 55.2, exactly in line with the sixth month average so suggests ongoing good jobs growth in the manufacturing sector. To underline the decent performance the headline index (despite today’s dip) is at levels historically consistent with GDP growth of around 4%”, said James Knightley, Chief International Economist at ING. 

US: ISM manufacturing offers some support for rate hawks - ING

The Manufacturing Markit PMI stood at 53.3 marginally above the 53.2 of the flash estimate while Construction spending surprisingly dropped 1.3% in June, against expectations of a 0.4% gain. 

Earlier, the core PCE price index eased to 1.4% from 1.5% in June (YoY) but came in above market expectation of 1.3%. Personal income remained unchanged in June, missing expectations of a 0.4% gain. 

Overall, the data showed mix signals and failed to boost the US dollar as manufacturing activity showed that it continued to expand but a slower pace while real income sent negative signals. 

Technical levels 

The main trend of USD/JPY points to the downside. The pair, for the fourth day in a row, reached fresh monthly lows. Today, the only signal of stabilization is the rebound back above 110.00. A break and a consolidation below would add bearish pressure opening the doors for a slide toward 109.50. 

The US dollar needs to hold above 110.00 to start building some support. If it manages to rise above 110.70, it would recover an important level and the odds of a more sustainable rebound would rise.