Dollar tests supports vs yen, needs a PMI beat to avert bigger retreat

July 22 (Reuters) – USD/JPY fell with Treasury and government yields across the major economies, save for BOJ-corralled JGBs.

Global growth prospects have dimmed amid inflation, broadening central bank rate hikes and below-forecast S&P Global July PMIs in Japan and Europe, leaving the U.S. PMI reading as the last defense against a broader USD/JPY fall.

Prices are already probing below the 21-day moving average and daily on-close pivot point supports at 136.76/69, with the 38.2% Fibo of the post-June Fed meeting range at 136.56.

A close below those supports, particularly if U.S. PMI also comes in weaker-than-forecast, as Japan and the euro zone readings did, would put in play the daily kijun, now at 135.77, and perhaps the 55-DMA at 133.22.

Key is whether today’s dive in bund and Treasury yields versus nearly static JGB yields lowers the terminal Fed funds rates further in the wake of Thursday’s weak U.S. data and the ECB’s belated 50bp flail at inflation and doubts about the structural inertia of its TPI anti-fragmentation plan.

If U.S. PMI data beat that could cushion USD/JPY’s fall and broader risk-off flows, but top-heavy daily and weekly charts put the burden of proof on bulls ahead of Wednesday’s Fed meeting.

(Randolph Donney is a Reuters market analyst. The views expressed are his own.)