Matt Weller, CFA, CMT
Faraday Research
It’s been a rather subdued start to this week’s trade, with most major global markets closed for Easter Monday. That said, we have seen the USD/JPY continue to rally, carrying over the some of the strength from last week. The catalyst for the yen weakness was a weaker-than-expected trade balance report from Japan, which showed a ¥1.45T deficit, larger than the ¥1.07T expected. Some of this increase was attributed to the April 1 sales tax hike in Japan, which contributed to an 18% surge in imports last month, but the sluggish growth in exports (only 1.8% y/y) is a particularly worrying sign for The Island Nation.
The other major fundamental driver of the USD/JPY has been US treasury yields. After dropping down to support near the 6-month lows at 2.60% early last week, yields spiked back up toward 2.75% by the close of the week. If rates manage to break above resistance at the 2.80% level this week, the USD/JPY could extend its recent gains and recover back toward the early April high above 104.00.
Looking to the chart, the USD/JPY remains within a short-term uptrend after bottoming near key support in the lower-101.00s two weeks ago. Though it’s difficult to fit a clean trend line to price itself, the RSI indicator has formed a clear channel over the last two weeks. Of course, the RSI indicator is bounded, so its uptrend cannot continue forever, but a break back into overbought territory (above 70) would suggest that rates may have further to run this week.
To the topside, bulls will be looking to target the near-term Fibonacci retracements at 102.72 (50%), 103.05 (61.8%), or even 103.52 (78.6%) next. On the other hand, a short-term drop below Friday’s low at 102.35 would shift the near-term bias back to neutral.
Key Economic Data / Events that May Impact USD/JPY This Week (all times GMT):
Tuesday: US Existing Home Sales (14:00)
Wednesday: US Markit Flash Manufacturing PMI (13:45), US New Home Sales (14:00)
Thursday: US Durable Goods Orders and Initial Unemployment Claims (12:30), JP National Core CPI (23:30)
Friday: JP All Industries Activity (4:30), US Markit Flash Services PMI (13:45)
This research is for informational purposes and should not be construed as personal advice. Trading any financial market involves risk. Trading on leverage involves risk of losses greater than deposits.
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