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  • Tuesday’s dismal US ISM PMI weighed on the USD and prompted some long-unwinding trade.
  • A modest uptick in the US bond yields extended some support to the USD on Wednesday.
  • Traders look forward to US ADP report for some short-term impetus ahead of Friday’s NFP.

The USD/JPY pair edged higher on Wednesday but lacked any strong follow-through and remained well within the striking distance of the overnight swing low.
 
The pair on Tuesday witnessed a dramatic intraday turnaround and fell around 85 pips from over one-week tops following the disappointing release of US ISM manufacturing PMI, which fell to 47.8 in September from 49.1 previous and missed consensus estimates by a big margin.

Remains at the mercy of USD/US bond yield dynamics

The reading marked the worst level since June 2009 and forced investors to start pricing in a higher probability of yet another interest rate cut by the Fed in October. This was reinforced by a sharp drop in the US Treasury bond yields, which exerted some heavy pressure on the US Dollar.
 
The data further bolstered fears of a US recession and weighed heavily on investors’ appetite for perceived riskier assets. The same was evident from a turnaround in the US equity markets, which provided an additional boost to the Japanese Yen’s safe-haven status and added to the selling bias.
 
However, a combination of supporting factors extended some support and provided a modest lift to the major during the Asian session on Wednesday. A modest bounce in the US bond yields underpinned the Greenback, which coupled with stability in equity markets remained supportive.
 
Meanwhile, the uptick lacked any strong bullish conviction as investors now seemed reluctant to place any aggressive bets, rather preferred to stay on the sidelines ahead of the next key data risk – the release of the closely watched US monthly jobs report – popularly known as NFP on Friday.
 
In the meantime, the broader market risk-sentiment and the USD price dynamics will be looked upon for short-term trading impetus. Later during the early North-American session, the ADP report on the US private sector employment might further contribute towards producing some meaningful trading opportunities.

Technical levels to watch