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USD/JPY Fundamental Daily Forecast – Weak German PMI Data Drives Investors into Safe-Haven Japanese Yen

By:
James Hyerczyk
Published: Sep 23, 2019, 10:30 UTC

Today’s price action is primarily being driven by a stock market sell-off in Europe. In addition to flight to safety buying of the Japanese Yen, investors are also seeking protection in U.S. Treasury bonds and gold, which means the safe-haven buying is real.

USD/JPY

The Dollar/Yen is trading lower for a third straight session on Monday, erasing earlier gains. The Forex pair edged higher early in the session as Asian equity markets traded steady following a late session sell-off in U.S. equities on Friday. However, the Dollar/Yen turned south after weak economic data from the Euro Zone drove down demand for risky assets, sending investors into the safe-haven Japanese Yen.

At 11:11 GMT, the USD/JPY is trading 107.470, down 0.092 or -0.09%.

Japan is on a bank holiday so all traders will due today is react to news from the Euro Zone and the United States. Early Tuesday, traders will have a chance to react to the latest Flash Manufacturing PMI data from Japan and a speech from Bank of Japan Governor Kuroda.

Today’s price action is primarily being driven by a stock market sell-off in Europe. In addition to flight to safety buying of the Japanese Yen, investors are also seeking protection in U.S. Treasury bonds and gold, which means the safe-haven buying is real.

The catalyst behind the drop in stocks and sell-off in the USD/JPY was the release of fresh data from the Euro Zone’s largest economy that suggested an ongoing economic slowdown could be worsening, and the prospect for a rebound remains dim.

According to reports released earlier on Monday, German Manufacturing PMI came in at 41.4 in September, down from August’s 43.5 and well below analyst estimates of 41.4.

The German Services PMI came in at 52.5, a decline from August’s 54.8 and well below expectations for a reading of 54.3. The Composite PMI came in at 49.1, below the 51.7 forecast.

“Another month, another set of gloomy PMI figures for Germany, this time showing the headline Composite Output Index at its lowest since October 2012 and firmly in contraction territory,” says Phil Smith, Principal Economist at IHS Markit. “The economy is limping towards the final quarter of the year and, on its current trajectory, might not see any growth before the end of 2019.”

The deep slump in manufacturing suggests the economy could be approaching recession. The economy shrank in the second quarter of 2019, and a subsequent quarter of contraction would signal a technical recession.

Daily Forecast

Look for further weakness in the USD/JPY on Monday if investors continue to shed risky assets.

Traders will also get the opportunity to react to minor reports on Flash Manufacturing PMI and Flash Services PMI. We’re also going to hear from FOMC members Williams and Bullard. Bullard’s speech could be a market mover since he voted against the Fed’s 25-basis point rate cut, opting instead to suggest the need for a 50-basis point cut.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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