USD/JPY drops to lowest level since January flash crash near 106.50

• 10-year US Treasury bond yield erases 2% on Friday.
• Today’s employment data from US fails to help market sentiment turn positive.
• CME FedWatch tool shows a 98% probability of a 25 bps rate cut in September.

After losing more than 100 pips on Thursday, the USD/JPY pair continued to push lower today as today’s data from the United States failed to help the Greenback stage  a recovery. As of writing, the pair was trading at its lowest level since the flash market crash witnessed back in early January at 106.58, erasing 0.7% on a daily basis. With today’s fall, the pair’s weekly loss surpassed 200 pips.  

The US Bureau of Labor Statistics today reported that Nonfarm Payrolls in the US increased 164,000 in July to match the market expectation. Other details of the publication revealed that annual wage inflation ticked up to 3.2% in the same period. The US Dollar Index, which touched its highest level in more than two years at 98.93 on Thursday, struggled to gain traction and was last down 0.22% on the day at 98.18. The fact that the CME Group’s FedWatch Tool now shows a 98% chance of one more 25 basis points rate cut in September also seems to be weighing on the currency.

Risk perception drives the pair’s action

Meanwhile, in a response to Trump administration’s decision to impose 10% additional tariffs on $300 billion worth of Chinese imports,  “If America does pass these tariffs then China will have to take the necessary countermeasures to protect the country’s core and fundamental interests,” Chinese Foreign Ministry spokeswoman Hua Chunying told reports, reviving concerns over  potential negative impact of a prolonged trade war on the global economy and forcing investors to continue to seek refuge.

As a result, the 10-year US Treasury bond yield lost 2% today after closing the previous day with a loss of more than 5% and weighed on the positively-correlated USD/JPY pair.

Reflecting the dismal market mood, Wall Street’s main indexes started the day deep in the negative territory. As of writing, the Nasdaq Comspotei was down 1.7% on the day while the S&P 500 was erasing 1.1%.

Technical levels to watch for