USD/JPY falls to weekly lows after US data

• The USD/JPY chains its fourth consecutive day of losses and is trading around the 138.80 area.
• The downward revision to unit labor cost and weak ISM PMIs raised dovish bets on the Fed.
• Falling US bond yields weigh on the dollar.

He USD/JPY continues to decline and fell to lows since May 24 as weaker US dollar, driven by weak ISM PMI results and lower first quarter unit labor cost, lead markets to anticipate higher probability that the Fed does not raise rates at the June 13-14 meeting. In this sense, the decline in US bond yields favors the pair’s downward trajectory.

US Bond Yields Lower Following US Data

Automatic Processing Inc. reported that the US economy added 278,000 jobs in May (mom) above the 170,000 expected by markets. However, the figure managed to slow down from the previous figure of 291,000 in April. On the other hand, unit labor costs in the first quarter rose 4.2%, revised from 6.3%. Additionally, the Institute for Supply Management (ISM) showed that the May manufacturing PMI came in at 46.9 versus 47 expected from 47.1 previously.

In this sense, as economic activity in the US continues to weaken while the Fed maintains its target rate at a considerably restrictive level, the markets are now discounting greater possibilities that the Fed will not raise rates at the next meeting on 13-14 of June. In reaction, US bond yields fell across the board, and shorter-term rates fell more than 1% on the day, putting further selling pressure on the dollar.

In this sense, according to the CME’s FedWatch tool, investors bet with a 71.6% probability that the Fed will not raise rates at its next meeting in June and will keep the target rate at 5.00%-5.25%.

For Friday’s session, May US Non-Farm Payrolls (NFPs) are expected to show an increase of 190,000 from 253,000 previously, while hourly earnings stall at 0.4% and the rate unemployment rise slightly to 3.5%.

technical levels

On the 4-hour chart, the indicators fell into negative territory, indicating that the bears have the upper hand in the immediate near term. It is worth mentioning that the RSI is nearing the oversold threshold and could suggest that a consolidation is in the offing.

In case the pair consolidates the losses, the next resistance for USD/JPY is seen at the 139.00 level, followed by the 140.50 area and the 141.00 psychological signal. On the other hand, if it loses ground, immediate support levels are seen at the 138.90 area, followed by the 138.50 level and the psychological signal at 138.00.