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USD/JPY is trading at 106.16 as the pair moves higher towards an hourly resistance from 106.05 the session lows.

The yen is in focus for the sessions ahead, before the Nonfarm Payrolls risk kicks in fully.

On Wall Street, there was a sharp drop in stocks, weighed by weakness in the technology sector while the US dollar extended its comeback to the 93 handle in the DXY at the start of the European session. 

The sentiment that the US economy’s rebound from coronavirus-driven lockdowns could be stalling should be a favourable environment for the safe-haven Japanese yen.

There were, however, some bright spots on the day with weekly initial jobless claims falling more than anticipated, but they still remained extremely high.

In other data reflecting the Q3 rebound, the July trade deficit widened to the highest deficit in 12 years. Imports surged 10.9% M0M while exports rose 8.1% MoM.

US non-manufacturing ISM at 56.9 in August was close to expectations (est. 57.0, prior 58.1), as new orders (56.8 from 67.7) and activity (62.4 from 67.2) pulled back from their strong July levels.  

US 2-year treasury yields fell from 0.14% to 0.12%, while the 10-year yield fell from 0.67% to 0.60% before steadying at 0.63% which pulled the pair lower.

Nonfarm payrolls coming up

Meanwhile, looking ahead, the US August employment report dominates the global calendar.

Analysts at Westpac explained that both the ISM employment indexes and ADP print point to downside risks for nonfarm payrolls in August.

As of July, non-farm payrolls were still almost 13 million below the February peak. Unemployment will remain elevated for some time; Westpac and the market forecast 10.0% and 9.8% in August (prior: 10.2%). And downward pressure will remain on average hourly earnings (prior: 0.2%, market f/c: 0.0%).

USD/JPY levels

 

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