- USD/JPY continued the downside to a fresh five-month low.
- Sudden tariff threat against Mexico keeps markets in risk-off mode.
- Fed chat sinks the dollar as rate cut presumed in H2
The dollar was on the back foot yet again overnight with Fed’s Bullard voicing his concerns for inflation, global growth and the impact of the tariff wars. The yen picked up the safe haven bid yet again while gold took off $13 higher and extended beyond trend line resistance while U.S. yields sank to fresh lows.
A dovish St Louis Fed president Bullard who is a voter this year said that a rate cut might be ‘warranted’ soon amid mounting risks to the outlook:
“A downward policy rate adjustment may be warranted soon to help re-center inflation and inflation expectations at target and also to provide some insurance in case of a sharper-than-expected slowdown. Richmond Fed president Barkin did not address monetary policy though he did note the US labour market is “red hot”.
The decline in US 10yr treasury yields dropped from 2.13% to 2.06% – the lowest since Sep 2017. Crucially, the inversion between longer and shorter-term rates imply that the markets are pricing in a rate cut for the second half of 2019 with the Fed fund futures falling sharply, now implying -64bp of easing by end-2019. 2-year yields fell from 1.90% to 1.81% – for a 17-month low. Subsequently, USD/JPY dropped from 108.40 to 107.90 overnight.
US data
US May manufacturing ISM index fell short of expectations, arriving at 52.1 (from 52.8 in the month prior).
” Interestingly, the employment sub-component rose in May to 53.7 (from 52.4 in the month prior) whilst new orders were up to 52.7 (from 51.7 in April). Prices paid also came in ahead of market expectations at 53.2 (from 50.0 in April). The survey’s special question highlighted concerns for US and global economic growth with respondents concerned about the US-China trade dispute and the impediments created by the resulting uncertainty,”
analysts at ANZ bank explained.
USD/JPY levels
As for technical levels, Valeria Bednarik, the Chief analyst at FXStreer, explained that the 4 hours chart for the USD/JPY pair shows that an attempt to recover some ground was contained by selling interest aligned in the 108.40 regions, now the immediate resistance:
“The short-term picture is markedly bearish, as, in the 4 hours chart, the price is developing well below firmly bearish moving averages, with the closest being the 20 SMA at around the 109.00 figure. Technical indicators in the mentioned chart maintain downward slopes in oversold territory, and with the Momentum at fresh lows, skewing the risk toward the downside.”
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