Will the USD/JPY test 105.00 this week?

Source: Economic Events 05 June 2019 - Admiral Markets' Forex Calendar

Going hand in hand with the sharp drop in US Treasury yields, which now price in a more than 95% chance of the US central bank FED cutting interest rates at least once by December 2019, the USDJPY followed and dropped below the crucial support region around 108.70.

The drop lower continued into the start of the week with the ISM Manufacturing following the US Services sector's collapse (and Canada and China's plunge), printing at a disappointing 52.1 (53.0 expected) and being its weakest since October 2016 (despite a rise in new export orders and employment).

Three of five ISM components declined, including production, inventories and supplier deliveries, and stagflation looms as prices paid rose.

In addition, the headline PMI fell to its lowest level since September 2009 as output growth eased (with output expectations crashing to the joint-lowest since records began) and new orders fell for the first time since August 2009.

What's especially noteworthy: the lowest ISM index reading during Trump's presidency was already on shakier ground even before the latest escalation of tariffs between the US and China, which definitely have the potential to pinch margins.

While the USD/JPY didn't aggressively accelerate on the downside (which indicates that most of the disappointing print was already priced in), the overall mode stays bearish.

If today's ISM Non-Manufacturing data set disappoints (in our opinion any reading below 55) too, recession fears loom again and USDJPY drops below 107.50, a stint towards 105.00, the flash crash lows from January, could be seen already in the second half of the week.

But even if we get to see a solid print, the current device seems to be 'Sell the bounce', especially if a bounce towards 109.00/20 occurs.

The mode stays bearish on a daily time-frame as long as we trade below 110.70.

Source: Admiral Markets MT5 with MT5SE Add-on USDJPY Daily chart (between 07 March 2018 to 04 June 2019). Accessed: 04 June 2019 at 10:00 PM GMT

Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2014, the value of USDJPY increased by 13.7%, in 2015, it increased by 0.5%, in 2016 it fell by 2.8%, in 2017 it fell by 3.6%, in 2018 it fell by 2.7%, meaning that after five years, it was up by 4.1%.

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