- The US economy added 114,000 jobs, below estimates of 175,000.
- The probability of a September Fed tapering of 50 bps rose to 80%.
- Tensions continued in the Middle East with threats of retaliation.
The USD/JPI forecast leans bearish, with the yen near a 7-month high as the dollar weakens amid growing fears of a US recession. Poor US data last week raised concerns that the economy could be slowing faster than expected, raising expectations for a rate cut by the Fed.
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Data on Friday showed the US economy added 114,000 jobs, below estimates of 175,000. Meanwhile, the unemployment rate jumped from 4.1% to 4.3%. These figures followed worse data on the manufacturing sector. Fears of a US recession have sent investors rushing to other safe havens like the yen.
Initially, traders were expecting a cut of 25 bps in September. However, after the jobs report, the probability of a 50 bps cut increased to 80%. At the same time, markets are betting on a 155 bps cut this year.
This rise in interest rate cut expectations sent US Treasury yields down, boosting the yen. Yields began to fall after the Fed’s policy meeting, where Powell opened the door to a September rate cut.
At the same time, investors sought safety amid global economic uncertainty. It is significant that many major economies buckle under high interest rates. Meanwhile, others like China are struggling to recover, pushing central banks to lower borrowing costs.
Elsewhere, Middle East tensions continued with threats of retaliation following the assassination of a Hamas leader in Iran. As a result, the US is ready to send its military to try to control the situation. Escalation fears dampened risk appetite in most markets, which benefited safer assets like the yen.
USD/JPI Key Events Today
USD/JPI Technical Forecast: Break below significant support levels
On the technical side, the price of USD/JPI is falling sharply, breaking below significant support levels. Bears have pushed the price well below the 30-SMA, showing solid momentum. At the same time, the RSI is trading in an oversold region, indicating extreme bearish momentum.
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The price recently broke above the key psychological level of 145.05. The bears are now eyeing the next hurdle at the 140.00 level. However, with the price oversold, the bulls could re-emerge for a break or pullback before the downtrend resumes.
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