16 May, 2024

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• USD / JPY slipped to two-week lows before bouncing back
• Markets still hope for US rate cuts this year
• Whether they’ll see any Japanese rate rises is much more doubtful
• Learn the ins and outs of trading USD/JPY – a pair crucial to international trade and a well-known facilitator of the carry trade

The Japanese Yen made sharp gains on the United States Dollar in Asia on Thursday but has already returned some of them as investors digest fascinating economic numbers from both sides of the USD/JPY pair.

Wednesday’s official snapshot of April US consumer price inflation showed it relaxing to 3.4%. This was as expected. But, after the shock strength in factory gate prices revealed earlier this week, there was clearly some relief that hopes for continued deceleration, and lower interest rates, were alive. These data knocked the Dollar across the board, cutting Treasury yields and boosting stocks.

However, on Thursday came news that Japan’s economy remains stuck in the doldrums. First quarter Gross Domestic Product fell by an annualized 2%. That was much worse than the 1.5% expected. It was also bad news for the monetary authorities in Tokyo who’d dearly like to move away from the ultra-low interest rates that have characterized Japan for decades.

They won’t have liked evidence of weak personal consumption in the GDP figures either. Of course this is only one set of data. But it’s a massive set. And it hardly shows an economy crying out for monetary tightening.

Still, for now the ‘weak Dollar’ story seems to be winning out, with USD/JPY having fallen by nearly three full yen at times in the past two days. But pending more data the jury must be seen as out on higher Japanese interest rates. This is likely to leave the Yen vulnerable to the better returns available across developed market currencies.

USD/JPY Technical Analysis

USD/JPY Daily Chart Compiled Using TradingView

The Dollar was recovering quite rapidly from the bout of intervention-selling by the Japanese authorities which knocked it back so sharply earlier this month.

However, the latest fundamental data have seen it slide once again, although the uptrend channel from March 19 still appears to offer some support. That comes in now at 154.630, which at the time of writing (0910 GMT on Thursday) is just about where the market it.

Breaks below that are likely to be held at the 50-day moving average, which is where the market bounced on its last big foray lower. That now offers support at 152.60, with further channel support below that at 152.086.

Bulls will need to retake and hold the 156.00 region to force near-term progress. Right now t this looks like a big ask but, if they can defend the current uptrend, they might be able to get there. Of course, the market will remain wary of further intervention.

Retail traders seem quite sure that USD/JPY is headed lower, with 70% bearish according to IG data.

Discover the power of crowd mentality. Download our free sentiment guide to decipher how shifts in USD/JPY’s positioning can act as key indicators for upcoming price movements: