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  • USD in trouble, riots, trade, economy, COVID-19, bad data all weighing.
  • USD/JPY holding ground as equities remain better bid. 

USD/JPY is currently trading at 107.54 and holding steady on Tokyo as markets soak up the start of the week’s news pertaining to riots in the US, the US and China stand-off and complacency in the face of it all. 

Risk sentiment biased positive from the off for the starting sessions this week despite the pending risks and blatant negative for economic growth stemming from the coronavirus lockdowns. 

Strong words from US President Trump’s address were still somewhat vague and the threats to China regarding Hong Kong were empty. Notably, the trade deal is intact for now which markets have cheered. The Hang Seng led the regional equity rally yesterday and that continued throughout Europe and the US. 

Consequently, USD/JPY ranged between 107.40 and 107.75, -0.2% over the day. The US dollar index, on the other hand, was down 0.5% on the day, to a three-month low as US riots mean more spending from the government and only goes to widen the record deficits. Risk-on sentiment will continue to see the US dollar unravel in the face of a weakened economy. 

US May manufacturing ISM is worrying

The US May manufacturing ISM at 43.1 was close to the 43.8 expected and beat the prior 41.5 with moderate rebounds in employment (32.1 from 27.5), new orders (31.8 from 27.1) and prices paid (40.8 from 35.3 in April), albeit still at weak levels and the sector is contracting at a slightly slower rate.  “Cautious outlooks outpaced positive responses by a factor of two to one”, analysts at Westpac explained which point to sharply higher manufacturing unemployment. There will likely be big cuts to investment spending over the next couple of quarters as well, which will limit the ability of the US economy to rebound.

 

USD/JPY levels