Weakening US Dollar Pushes USD/JPY Below 156.00, Investors Eye US Employment Data

Japanese Yen Prices, Charts, and Analysis

  • Weak US Manufacturing Activity Weighs on the US Dollar
    Japan Spends Over $62 Billion to Support the Yen

The latest data from the Institute for Supply Management (ISM) revealed that manufacturing activity in the United States continued to contract for the second consecutive month and the 18th time in the last 19 months. The May reading of 48.7 missed the previous month’s print of 49.2 and the market forecast of 49.6, indicating a further slowdown in the manufacturing sector.

This contraction in manufacturing activity has contributed to a decline in US Treasury yields, as expectations for a rate cut by the Federal Reserve in November have solidified. The market is now fully pricing in a 25 basis point rate reduction at the upcoming Federal Open Market Committee (FOMC) meeting, reflecting concerns over the weakening economic conditions. Consequently, the US dollar experienced a broad-based decline against major currencies yesterday and remains subdued in early European trade today.

In a separate development, the Japanese Finance Ministry has disclosed that a record Yen 9.8 trillion (USD 62.2 billion) was spent between April 26 and May 29 to prop up the Japanese Yen in the foreign exchange market. This unprecedented intervention came after the USD/JPY exchange rate touched a high of 160.21 at the end of April, prompting the Bank of Japan to intervene and sending the pair back down to 151.92 on May 3rd.

However, the recent climb in USD/JPY to near 158.00 underscores the challenges Japanese authorities face in defending the Yen’s value. The USD/JPY pair is now trading below 156.00 after yesterday’s weaker US data release, and further downside may be in store.

This week, market participants eagerly await the release of the monthly US Jobs Report on Friday, which could prove to be a significant market mover. A weaker-than-expected jobs market would reinforce the narrative of a slowing US economy and provide the Federal Reserve with additional flexibility to loosen monetary policy.

If the jobs data disappoints, technical support levels for the USD/JPY pair around 151.92 could come into play, as a softer employment situation may increase the likelihood of a rate cut by the Fed.


Retail Trader Sentiment Signals Mixed Outlook for USD/JPY

The latest retail trader data shows that 30.08% of traders are currently net-long on the USD/JPY currency pair, with the ratio of short to long positions standing at 2.32 to 1. This indicates that the majority of retail traders are positioned for the yen to strengthen against the US dollar.

However, the analysis also reveals some interesting shifts in sentiment:

  • The number of net-long traders has increased by 38.88% compared to the previous day and 11.38% higher than a week ago. This suggests growing bullishness on the US dollar.
  • Meanwhile, the number of net-short traders has decreased by 6.92% compared to the previous day and 7.71% lower than last week. This points to a reduction in bearish bets on the yen.

Typically, the market tends to take a contrarian view to crowd sentiment. The fact that traders remain net-short on USD/JPY would usually signal that the pair may continue to rise.

Yet, the recent changes in sentiment warn that the current USD/JPY price trend may soon reverse lower, despite the overall net-short positioning. The reduction in net-short bets and increase in net-long positions suggest that the market’s bearish conviction on the yen may be waning.

This mixed signals make the near-term outlook for USD/JPY rather unclear. Traders will likely focus on key economic data, such as the upcoming US jobs report, to get a clearer sense of the dollar’s trajectory and the potential impact on the USD/JPY exchange rate.

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