USD/JPY extends recovery to 107.70 area despite disappointing US PMI data
- Markit Manufacturing and Services PMI both came in below market expectations.
- 10-year US T-bond yield extends recovery, adds more than 2.5%.
- US Dollar Index stays in range above 96.50 handle.
After spending the first half of the day in a very narrow band near 107.50, the USD/JPY came under a renewed pressure and dropped to 107.40 area but didn't have a difficult time extending its recovery. As of writing, the pair, which touched a session high of 107.70 in the last minutes, was up 0.32% on a daily basis at 107.65.
Earlier in the session, the preliminary PMI reports published by the IHS Markit showed that the business activity in both the manufacturing and the service sector in the U.S. continued to lose momentum in June with headline PMIs retreating to 50.1 and 50.7, respectively. Although the initial market reaction forced the US Dollar Index to slump to its lowest level in two weeks at 96.46, the sharp rebound witnessed in the Treasury bond yields helped the greenback and the pair turn north. As of writing, the DXY was virtually unchanged on a daily basis at 96.60.
Following this week's sharp fall amid heightened expectations of the Fed cutting rates as early as July, the 10-year T-bond yield is staging a decisive technical rebound, rising 2.75% at the time of press. However, the lack of fundamental drivers behind that move suggests that it is unlikely to become a trend.
In fact, earlier in the day, Fed Vice Charisa said that there was a broad agreement on the need for a looser Fed policy. Furthermore, I advocated for a 50-basis-point rate cut to 1.75 percent to 2.00 percent and a commitment not to raise rates again until core inflation reaches our 2 percent target on a sustained basis, Minneapolis Fed President Kashkari said in an essay explaining his policy outlook.
Technical levels to watch for