• The US economy added 114,000 jobs, below estimates of 175,000.

• The likelihood of a 50-bps September Fed cut has risen to 80%.

• Middle East tensions continued with threats of retaliation.

The USD/JPY forecast leans bearish, with the yen near a 7-month high as the dollar weakens amid growing fears of a US recession. Downbeat US data last week raised concerns that the economy might be slowing down faster than expected, resulting in a surge in Fed rate cut expectations.

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Data on Friday showed the US economy added 114,000 jobs, below estimates of 175,000. Meanwhile, the unemployment rate jumped from 4.1% to 4.3%. These figures followed more downbeat data on the manufacturing sector. Fears of a recession in the US had investors rushing to other safe-haven assets like the yen.

Initially, traders were expecting a 25-bps cut in September. However, after the jobs report, the likelihood of a 50-bps cut has risen to 80%. At the same time, markets are betting on 155-bps cuts this year.

This surge in rate cut expectations led to a decline in US Treasury yields, boosting the yen. Yields started falling after the Fed policy meeting, where Powell opened the door to a September rate cut.

At the same time, investors were seeking safety amid global economic uncertainty. Notably, many major economies are buckling under high interest rates. Meanwhile, others like China are struggling to recover, pushing central banks to lower borrowing costs.

Elsewhere, Middle East tensions continued with threats of retaliation after the killing of a Hamas leader in Iran. As a result, the US is ready to send its military to try and control the situation. Fears of an escalation have dampened risk appetite in most markets, benefitting safer assets like the yen.

USD/JPY key events today

• US ISM Services PMI

USD/JPY technical forecast: Plumet below significant support levels

On the technical side, the USD/JPY price is sharply declining, breaking below significant support levels. Bears have pushed the price far below the 30-SMA, showing a solid swing. At the same time, the RSI trades in the oversold region, indicating extreme bearish momentum.

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The price recently fell past the 145.05 key psychological level. Bears are now eyeing the next hurdle at the 140.00 level. However, given the price is oversold, bulls might resurface for a pause or pullback before the downtrend continues.

https://www.forexcrunch.com/blog/2024/08/05/usd-jpy-forecast-hits-7-month-low-amid-us-recession-fears/