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  • USD/JPY  bulls barely holding on by the skin of their  teeth.
  • The downside risks are heightening and the global economy is slowing, supporting the Yen.

USD/JPY is trading on the 107 handle, with bulls barely holding on by the skin of their  teeth as the US Dollar falls out of favour with investors, weighing up as to whether their cash is in safer hands elsewhere for the meanwhile.  

The US Dollar has been sliding at the start of the week in what has been the worst start of a fourth-quarter in the US stock markets since 2008 following  a bumpy  third-quarter  stretch for  stocks.  October has historically been a high point for the VIX volatility index and this October is far is certainly laying claim to such a title which is giving the Yen a boost as the top performer form the 1-hour time frame all the way through to the past seven days. US stocks extended their losses overnight on yet further dismal data ahead of what is now going to be a real showdown into the closing sessions.

The downside risks are heightening and the global economy is slowing, which was yet again evident  in US data that sent the US benchmarks lowing in the  Dow Jones Industrial Average, DJIA, extending the 344 points, or 1.3%, lost the prior session by a further 494.42 points, or 1.86%, to end at 26,078. The S&P 500 index dropped 52.64 points and the Nasdaq lost 123.44 points.  
Ahead of the Nonfarm Payrolls on Friday,  the ADP data showed just 135,000 new jobs against expectations of 140,000.    Also,    August data was revised down sharply from 195,000 to 157,000 which was the clincher for stocks.  

Looking ahead to key data releases  

looking ahead, we will have the US data highlight in the ISM’s September non-manufacturing survey and should this too be another disappointment, as was the  manufacturing version earlier the week,  the US Dollar will surely suffer and could be the straw that breaks the camel’s back, sending USD/JPY over a cliff.  On the other hand, the downside may well be limited ahead of the more crucial jobs numbers the next day. Either way, the US Dollar and yields need a lifeline at this juncture. The US 2-year treasury yields fell from 1.55% to 1.48% and the 10-year dropped from 1.66% to 1.59%. “Markets are pricing 20bp of easing at the 31 October meeting and a terminal rate of 1.02% (vs 1.88% currently),” analysts at Westpac explained.

USD/JPY levels