USD/JPY trapped between 200-day SMA and 152, flash PMIs diverge

The rally on US yields took a breather on Thursday, prompting the USD index to trade lower for tis second day over the past 10. Moreover, it was the dollar’s worst day during its entire rally from the September low and closed the day with a bearish outside, engulfing candle. This allowed EUR/USD to finally post a solid day’s gain against is bearish trend and rally from the August, low, and helped GBP/USD recoup Wednesday’s losses and rise in line with yesterday’s bullish bias, despite soft PMI reports from both the UK and the Euro Area.

Flash PMIs lower in aggregate

US flash PMIs

• October’s figured marked “a further solid rise in business activity to mark a robust start to the fourth quarter” according to S&P Global
• Composite PMI increased to a 2-month high of 54.3
• Slower input costs and prices charged for October

Eurozone PMIs

• The Eurozone’s services PMI slowed to an 8-month low of 51.2, below expectations of 51.4 (51.4 prior)
• Manufacturing contracted for a 19^th month but at a slightly slower pace
• New orders lower for a fifth month overall on the eurozone

UK flash PMIs

• Composite, services and manufacturing all expanded, but at a slower pace and below expectations
• Manufacturing PMI barely expanded, slowing to 50.3 (51.5 prior)
• Services PMI slowed to an 11-month low of 51.8 (52.4 prior)

Japan’s flash PMIs

• Japan’s economy slipped back into contraction, with a composite PMI of 49.4
• Services slipped below 50 to 49.3, down from 53.1 prior
• Manufacturing contracted at a faster pace of 49.5, compared with 49.7 prior

MOF get verbal on the yen (again)

Japan’s Finance Minister Kato sent his latest warning to yen speculators, commenting on “one-sided, rapid” moves on the yen. The Japanese yen has fallen nearly 9% against the USD since September, and the comments alongside the move lower in US yields and the dollar saw USD/JPY snap a 3-day winning streak and trade back below 152. The Japanese yen was also the strongest FX major on Thursday, while CAD, USD and AUD were the weakest.

USD/JPY technical analysis:

Thursday’s pullback was the most bearish day in 18 for USD/JPY. Yet it was still an inside day, given the strong rise for yields on Wednesday prompted a surge for the dollar and decent close above 152 for USD/JPY. The 200-day SMA is also nearby for potential support at 151.40, and of course the 151 handle 40-piops beneath it.

Given yen strength and comments from the MOF on the currency, we could see a pullback towards the 200-day SMA this session. But this is a tough level to crack, at least initially. Therefore, my bias is for a cheeky rebound from that key level. The bigger question is whether bulls have the appetite to trade back above 152, which would also clear the 2022 MOF intervention level.

Events in focus (AEDT):

• 10:01 – UK consumer confidence (GfK)
• 10:30 – JP CPI (Tokyo)
• 16:00 – SG CPI
• 18:00 – ECB McCaul speaks
• 19:00 – DE business expectations (Ifo)
• 19:00 – EU loans, money supply
• 21:00 – IMF meetings
• 23:30 – US durable goods orders
• 23:30 – CA employment
• 01:00 – US consumer sentiment, inflation expectations (University of Michigan)
• 01:30 – US GDPnow

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge