- The yen’s gains extended in August as investors raised bets on a Fed rate cut.
- Business activity in the US manufacturing sector fell to an eight-month low.
- Markets were pricing in a 27.5% chance of a 50 bps Fed rate cut in September.
USD/JPI price analysis continues to point south as the yen strengthens on increased safe-haven demand. Investors fear a faster-than-expected decline in the U.S. economy, but remain cautious ahead of the U.S. nonfarm payrolls report.
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The yen just finished a bullish month and is extending these gains into August. Namely, July ended with a rate increase of 10 basis points by the Bank of Japan. At the same time, the central bank announced plans to reduce bond purchases, indicating confidence in Japan’s economic recovery.
The yen’s gains extended in August as investors raised bets on a Fed rate cut. Namely, in September, the American central bank announced the beginning of the reduction of interest rates. However, it is conditional that inflation continues to decline. Still, it’s a big step toward lower borrowing costs.
The latest increase in Fed rate cut expectations came after poor economic data. Business activity in the US manufacturing sector fell to an eight-month low, and the ISM PMI fell from 48.5 in June to 46.8 in July. Because of this, fears of an economic slowdown have increased. At first, investors were confident that the Fed would achieve a soft landing, where inflation would fall without too much damage to the economy. However, this may not be the case.
Furthermore, US jobless claims hit an 11-month high of 249,000. By the end of the day, markets had a higher than 27.5% chance of a 50 bps Fed cut in September. Furthermore, this outlook could strengthen with upcoming non-farm payrolls. Economists expect slower job growth in July.
USD/JPI Key Events Today
- Average hourly earnings in the US
- US Non-Farm Payrolls
- Unemployment rate in the US
USD/JPI price technical analysis: Bears expect 148.04 level in new momentum
On the technical side, the USD/JPI price made new lows after breaking below the 152.01 support level. The price is trading in a developed downtrend, making consistent lower highs and lows. At the same time, it respected the 30-SMA as resistance, showing that the bears are in the lead.
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The new momentum is approaching the critical level of 148.04. It might stop here while the bears rest before retreating or falling. The downtrend will continue as long as the price remains below the SMA.
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