USD/JPY: Collapsing on Fears About A Global Economic Downturn

USD/JPY Current price: 108.94

• Chinese manufacturing PMI fell into contraction territory,  fueling fears of a global economic downturn.
• Worldwide equities trade in the red, US Treasury yields at their lowest since February 2018.

Fear dominates the FX board post-New Year holidays, with the yen being the overall winner, advancing sharply against all of its major rivals. The greenback also benefits from the risk-averse environment, particularly against European currencies, but can't fight against safe-haven assets.

The USD/JPY pair fall below 109.00, testing June 2018 low of 108.71 before bouncing modestly. The negative sentiment was triggered by the Chinese Caixin Manufacturing PMI for December released at the beginning of the day, which resulted at 49.7 from 50.2 in November, falling into contraction territory and spurring concerns about a global economic downturn. Equities are falling sharply worldwide, while US Treasury yields are also on a decline, amid increased demand for bonds. The benchmark yield for the 10-year note is down to 2.66%, a level last seen in February 2018. The 2-year note yield fell Monday roughly 4 basis points, now at around 2.50%.

It was a bank holiday in Japan, and there were no data released in the country but Europe and America are back in full mode, with no more holidays in the region. The macroeconomic calendar, however, will be light during the US session, with only the final version of the December Markit Manufacturing PMI scheduled, previously estimated at 53.9.

From a technical point of view, the pair is at a brink of turning long-term bearish, not far from the 61.8% retracement of the 2018 rally at 108.40. In the 4 hours chart, the 100 and 200 SMA continue heading south far above the current level, while technical indicators hold within extremely oversold levels, losing their downward strength but falling short of confirming a bottom. Below 108.70, the mentioned 108.40 comes at sight, ahead of 108.10, May 2018 monthly low. To the upside, the pair would need to firm up above 109.20 for the bearish pressure to ease, something quite unlikely in the current scenario.

Support levels: 108.70 108.40 108.10

Resistance levels: 109.20 109.55 109.90

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