After a multi-day rally on Tuesday, the USD/JPY pair reversed sharply to the downside and bounced down hard. This morning, the bulls are struggling to regain the advantage, but the bears are gaining.
Who brought down the dollar?Yesterday, nothing foreshadowed a catastrophe of this magnitude. Ahead of the release of the next batch of US economic data, the dollar index reached a multi-year high of 109.27.
In the first half of the day, the greenback felt the strong support of the Federal Reserve's hawks, which helped it strengthen against the yen to a 5-week peak of 137.70.
However, US statistics turned out to be worse than forecasts and traders were disappointed, as a result of which the USD/JPY pair abruptly changed direction and shot down to the level of 135.80.
Literally overnight, the dollar plunged against the Japanese currency by 100 points, or 0.7%. The key pressure on it was increased concerns about the slowdown in the American economy.
The risk of recession has increased due to the pessimistic data provided by S&P Global. The agency reported that in August, the composite purchasing managers' index fell from the July value of 47.7 to the level of 45, which is the lowest since February 2021.
The PMI in the services sector showed an even more significant drop this month. The indicator dropped from 47.3 to 44.1, while economists, on the contrary, expected an increase to 49.2.Fresh statistics on the US real estate market, which was published on Tuesday, also added fuel to the fire. New home sales in the US fell by more than 12% in July, to the lowest level in six years (from 585,000 to 511,000).
In addition, the dynamics of the index of manufacturing activity from the Richmond Fed, which was also published yesterday, turned out to be negative. The index fell to -8.0 in August from the previous reading of 0.0.
Taken together, all of these data pointed to signs of a slowdown in US economic growth. Now the markets are once again fearing that the Fed may loosen its hawkish grip on inflation with the looming recession.
The resumption of speculation about a less aggressive rate hike has awakened the dollar bears. They increased their pressure on the USD, even though in the coming days Fed Chairman Jerome Powell may trample on the root of all doubts about the US central bank's decisiveness.
Caution: High volatility!Most analysts predict that in the short term, the USD/JPY pair will continue to storm strongly. The high volatility of the asset will be associated with the continuing uncertainty about the Fed's future course.
Now traders expect that Powell's speech on Friday at the 3-day Fed symposium in Jackson Hole will bring clarity to this issue.
Many experts are betting that Powell will remain true to the current monetary rate despite the increasing risks of recession.
This opinion is supported by recent hawkish comments by members of the Fed. So, yesterday, the president of the Federal Reserve Bank of Minneapolis Neil Kashkari said that the central bank will have to act more aggressively for a longer time if inflation turns out to be much more stable than expected.
According to analysts, any hint by the head of the Fed to further tightening at a given pace can inspire the dollar to new highs. And most of all, in this case, the yen will suffer again.
Recall that this year, the JPY plunged more than other currencies from the group of 10 against the dollar due to the divergence in the monetary policy of the Fed and the Bank of Japan.
According to forecasts, after Jackson Hole, bulls can push the USD/JPY pair to the psychologically important 140 mark.
However, let's not force things, especially since today we are expecting a new batch of important economic data from the United States.
Statistics on basic orders for durable goods will be published on Wednesday. According to economists, the indicator will be 0.2% against the previous value of 0.4%.
If the forecast is justified and the volume of orders falls, this will indicate a decrease in the activity of manufacturers, which will be another blow to the gut for the dollar.
In the near future, the USD/JPY pair risks being far down again. The technical picture also gives hope to intraday bears: a pullback of the RSI (14) and bearish MACD signals.