- Last Friday’s very weak German Manufacturing Purchasing Managers’ Index data was another blow to the global economic backdrop, with concerns throughout this year of a global slowdown in China, through Asia Pacific and increasingly also in Europe.
- This has seen riskier asset classes come under negative forces over the past week into latter March, with global equity averages suffering notable corrective losses as we have shifted to a “risk off” phase.
- Furthermore, a very dovish Federal Reserve at their 20th March Meeting has seen longer term US Treasury (UST) yields plunge back lower and an inversion of the 3 months-10yr sector of the UST yield curve. This yield curve inversion is often seen as a sign of a future recession.
- In the Forex space, the main beneficiary of this shift to a “risk off” scenario has naturally been the Japanese Yen with its quality as a safe haven.
- The Yen has rallied against most major currencies over the past week, and here we focus on the USDJPY move lower and downside risks.
USDJPY negative after intermediate-term shift to neutral
A minor rebound Monday but contained by our initial, modest 110.30 resistance level, sustaining bear forces from the Friday push close to a key 109.66 support (to 109.66) after Wednesday’s post-FOMC selloff through the 110.32/23 support area (to signal a topping pattern), to aim lower into Tuesday.
The latter March approach to the key 109.66 support level, alongside the reversal of the 2019 up trend produced a shift from an intermediate-term bulky trend to an intermediate-term range, we see as 108.47 to 112.14.
- We see a downside bias for 109.69/66; break here aims for 109.23 and 108.85.
- But above 110.30 opens risk up to 110.96.
Intermediate-term Range Breakout Parameters: Range seen as 108.47 to 112.14.
- Upside Risks: Above 112.14sets a bull trend to aim for 113.71, 114.55 and 115.00.
- Downside Risks: Below 108.47 sees a bear trend to target 107.74, 106.72/55 and 105.00.
4 Hour USDJPY Chart