- Summary:
- The Dallas Fed Manufacturing Index drops to record lows as the coronavirus pandemic hits factory activity in Texas, putting the USDJPY under pressure.
The USDJPY is lower this afternoon as the Dallas Fed Manufacturing Index for April saw a plunge to -73.7 versus the consensus number of -75.0. The latest data is an indication that all is still not well with the manufacturing activity in the state of Texas.
Virtually every metric measured by the index was in negative territory. New orders, shipments, production, inventories, unfilled orders, wages and benefits as well as hours worked all came in worse than in the previous month. Only employment and company outlook showed slight improvements.
In responding to the news, the US Dollar continued to retain its weak intraday sentiment and is trading mildly lower against the Japanese Yen. The USDJPY is down 0.14% on the day and currently trades at 107.29.
The Dallas Fed Manufacturing Index is a measure of manufacturing activity in the state of Texas, which is well-known for its vibrant energy sector.
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Technical Outlook for USDJPY
The USDJPY is currently testing support at 107.03. It had already touched off this level today when it was on its way to intraday lows of 106.99. This is the 3rd time in nearly three weeks that this support has been tested. So far it has held firm, but downward pressure is now being exerted by the progressively lower higher highs seen at 109.30, 108.42 and 107.82. The picture is that of a classic descending triangle.
If the expectations for this pattern are met, we should see a breakdown of 107.03, which targets previous highs of 19-29 August and the prior low of 7 October at 106.65 as the initial downside target. Below this area, the previous lows of 5 August and 3 September 2019 located at 105.75 form another support target, while 104.56 could come into the picture as well if there is a further selloff on the USDJPY. We should also note the presence of the lower border of the long-term symmetrical triangle, which lies between 106.65 and 105.75. A break of 105.75 fulfils the 3% penetration filter and 104.56 could be the first of several potential long-term downside targets to be targeted.
On the flip side, a recovery bounce from 107.03 has to surmount the progressively lower highs, especially the 109.74 top to invalidate the descending triangle. This scenario sets up a potential run towards the 109.70 resistance target. If 110.58 comes into focus, this will present a challenge of the upper border of the long-term symmetrical triangle. A breakout from here targets 111.94 as the first of several upside targets the USDJPY could potentially aim for in the long-term.