USD/JPY tumbles to 135.55 as bonds jump further after US data

• US Treasury yields decline dramatically on Friday.
• US Economic data increases fears of a recession.
• USD/JPY is suffering the worst weekly performance since 2020.

The USD/JPY accelerated the decline following the release of US economic data and bottomed at 135.56, reaching the lowest level in two weeks. The pair hovers around 136.00, down 250 pips for the week, the worst performance since 2020.

The Japanese yen is up across the board even as stock prices rise in Wall Street and Europe. The rally in bonds gained speed after the release of US data, adding fuel to the yen.

The US S&P Global Services PMI tumbled unexpectedly in July to 47, down from 52.7 and against expectations of 52.6. It was the first reading under 50 since the pandemic. The S&P Manufacturing PMI fell less than expected to 52.3 against the market consensus of 52.

The activity numbers increased fears about a recession and softened Fed rate hike expectations. Next week the US central bank will likely raise the Fed Funds rate by 75 basis points. At the same time, stocks reacted to the upside.

From a technical perspective, the short-term bias now points to the downside in USD/JPY. The pair is about to post the first daily close under the 20-day Simple Moving Average since May. The immediate support is seen at 135.55, followed by the 134.50 zone. The US dollar needs to recover the 137.85 area to remove the negative tone.

Technical levels