USD/JPY dives to the lowest level since May 25, further below 109.00 mark

• A combination of factors dragged USD/JPY lower for the third successive day.
• The disappointing ADP report prompted aggressive selling around the USD.
• The risk-off mood benefitted the safe-haven JPY and contributed to the slide.

The USD/JPY pair witnessed some aggressive selling during the early North American session and dived to the lowest level since May 26, around the 108.75 region in the last hour.

The pair struggled to preserve its intraday gains, instead met with some fresh supply near the 109.20-25 region and prolonged this week's negative move for the third consecutive session. The latest leg of a sudden fall over the past hour or so followed the disappointing release of the US ADP report, which weighed heavily on the US dollar.

The Automatic Data Processing (ADP) Research Institute reported that the US private-sector employers added 330K new jobs in July. This was well below consensus estimates pointing to a reading of 695K and June's downwardly revised reading of 680K. The data reinforced dovish Fed expectations, which was evident from a sharp fall in the US Treasury bond yields.

The USD remained depressed and failed to gain any respite from St. Louis Fed President James Bullard's comments, saying that inflation is going to be more persistent than some people expect. Bullard further added that inflation will remain elevated near 2.5% to 3% in 2022 and is not going to come down as fast as some people want.

Meanwhile, worries that the spread of the highly contagious Delta variant of the coronavirus disease could derail the global economic recovery took its toll on the global risk sentiment. The risk-off impulse – as depicted by a weaker tone around the equity markets – benefitted the safe-haven Japanese yen and exerted additional pressure on the USD/JPY pair.

Apart from this, possibilities of some technical selling below the 109.00 mark further contributed to the ongoing downward trajectory. This could also be seen as a fresh trigger for bearish traders and might have set the stage for a slide towards the 108.60-55 region en-route May swing lows, around the 108.35 area.

Wednesday's US economic docket also features the release of ISM Services PMI, which might influence the USD price dynamics and provide some impetus to the USD/JPY pair. Apart from this, the broader market risk sentiment and the US bond yields will also be looked upon for some short-term trading opportunities.

Technical levels to watch