USD/JPY Breaks ¥100 after Weakest ISM Manufacturing Four Years
Monday’s US ISM Manufacturing data came in at 49.0, far below the 51.0 expected figure, according to a Bloomberg News survey. The 49.0 reading is also below the critical 50.0 level, which demarks expansion/contraction; the last time ISM data showed contraction was half a year ago, and this amounted to the weakest print in four years.
The closely watched subcomponents of the ISM report, Prices Paid and Employment, both missed expectations as well. Importantly, the poor employment reading may serve as a proxy for poor NFP employment data on Friday. The USD fell sharply after this poor data while US equities rose, furthering speculation that the Fed will have to continue QE in order to support growth.
USDJPY 1-minute Chart: June 3, 2013
Charts Created using Marketscope – prepared by Christopher Vecchio
Following the release, the USDJPY slammed through the psychologically significant ¥100.00 level, hitting its lowest level since May 9 at 99.63. The US Dollar was generally weaker across the board, with the AUDUSD rallying from $0.9635 to as high as 0.9713, the EURUSD rallying from $1.2963 to as high as 1.3037, and the GBPUSD rallying from $1.5235 to as high as 1.5392.
Overall, the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) fell towards 10700, a level that has not been reached since May 13. Weakness in the buck followed 10-year US bond yields lower, reaching 2.090% at the time this report was written. Consequently, Friday’s NFP data has increased importance and will likely strongly influence Fed policy, specifically if the QE3 taper could begin at the June meeting (we do not think the taper begins until at least September).
As Quantitative Strategist David Rodriguez noted this morning in the DailyFX Real Time News feed, the US Dollar could be set up for weakness as deleveraging in USD-based financial instruments picks up.
--- Written by Christopher Vecchio, Currency Analyst, and Kevin Jin, DailyFX Research
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