Chart of the Day Bearish USDJPY

Bearish USDJPY – USD: Dismal US ISM manufacturing PMI raised questions on outlook: The ISM Manufacturing Index fell to 48.1 in November (Oct: 48.3) to mark its fourth consecutive sub-50 reading that signaled an ongoing contraction in the American manufacturing sector, raising a renewed worries over US growth outlook that has thus far being supported by resilient consumer spending. The marginal decrease in the headline index reflects the continuous contractions across all sub categories save for supplies deliveries. Notably, new orders and employments plunged further last month while productions saw a smaller decline. The survey showed that firms’ main concerns remained uncertainty surrounding tariffs which led to more careful consideration on spending amidst a largely cautious sentiment. On a separate note, in contrast with the dismal ISM index, the final reading of the IHS Markit US Manufacturing PMI was revised upwards from 52.2 to 52.6 in November (Oct: 51.3) to indicate expansion. 

Sharper decline in construction spending cast weaker outlook on US housing market: Adding to the poor ISM reading was the sharper 0.8% MOM decline in US October construction spending that was accompanied by a large downward revision to September print (from +0.5% to -0.3%) that suggests limited growth in the housing market. Both residential and non-residential spending recorded declines as investments turned weaker despite lower interest rates, casting doubt over recent optimism that the housing market is set for a strong recovery in 4Q and heading into 2020. 

JPY: Japan manufacturing sector stuck in downturn: The final reading of the Jibun Bank Japan Manufacturing PMI was revised from 48.6 to 48.9 in November (Oct: 48.4), to signal a marginal improvement in Japan’s factory conditions but was broadly indicative of an ongoing downturn. The sector in general continued to see contraction in new orders and new exports orders that reportedly stemmed from China alongside softer prices and subdued business confidence. 

From a technical and trading perspective, USDJPY From a technical and trading perspective, the close back towards 109 would suggest a false break and return to the well trodden range 108/109. Yesterday the pair printed a six month high only to close back at the lows of the day, printing a bearish key reversal pattern and flipping the daily chart bearish as per the near term volume weighted average price. Follow through selling today will open a move to test bids back to range support at 108.

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