The US ISM manufacturing report published on Monday hit its biggest monthly fall since December 1980 and "slapped investor confidence by dropping to 51.2 from 64.4", according to Ishaq Siddiqi, market strategist at ETX Capital.

This release was followed by a sharp sell-off in US and Asian Markets and a lower open by European stocks on Tuesday morning. The USD was dragged lower by this data, posting losses against most of its rivals, but particularly against the Japanese yen. The USD/JPY remains vulnerable for a test of 100 after breaking through its support and posted an intraday low at 100.755.

As Kathy Lien, managing director at BK Asset Management explained, in order for USD/JPY to rally investors need to be optimistic about the outlook for the US economy. Unfortunately, Monday's ISM number gave them more reasons to worry over whether the Federal Reserve's decision to continue tapering asset purchases was a wise one.

"Also, it is very difficult for USD/JPY to rise when US yields and stocks are falling and in fact their decline puts downside pressure on USD/JPY," she said.

The analyst also believes that while the Japanese government won't be happy to see the recent change in the Yen's trend, they won't feel pressured to act as long as USD/JPY is trading above 97.

"With no major US or Japanese economic reports scheduled for release this evening, risk appetite should drive Yen flows," she noted.

Appetite for the Yen could also drive EUR/JPY lower

EUR/JPY remains under pressure after losing the key support at 138.43 (04/12/2013 low) and is eroding its next support at 136.74, the 61.8% retracement of the move up from November.

Karen Jones, technical analyst at Commerzbank, said that "October highs are found at 135.52/45 and we would allow for losses here en route to the 133.51/82 May 2013 peak and the 23.6% retracement of the move up from 2012.

"The Elliott wave counts on the daily chart have turned decidedly negative and are indicating a slide to the November low at 131.21."

NJ

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