USDJPY: Strong GDP Fails to Invigorate Buck Bulls

To avoid conflicts with Thursday’s Thanksgiving holiday in the US, a week’s worth of US economic data is being released over just today and tomorrow’s trading sessions. This veritable raft of US data includes high-impact releases like Preliminary GDP (just released); the S&P Case-Shiller Home Price Index, Richmond Fed Manufacturing Index, and Conference Board Consumer Confidence survey (later today); and US Durable Goods Orders, Initial Unemployment Claims, Personal Spending and Income data, Chicago PMI, New Home Sales and Pending Home Sales (tomorrow). Clearly, US traders will have to postpone daydreams about Thanksgiving Day feasts and give their full attention to the markets today and tomorrow.

Indeed, the dollar got its first “snack” of volatility with the just-released revision to Q3 GDP in the world’s largest economy. The report came out far better than expected, with Q3 growth revised up to 3.9% annualized, better than the 3.3% expected and 3.5% initial estimate. The strong report was fueld by upward revisions to inventory and consumer spending and, combined with the Q2 GDP reading, means that the US has just seen its strongest six months of growth in a decade! Perhaps the most encouraging part of the report for bulls was the rise in the GDP price index from 1.3% to 1.4%; if inflationary pressures continue to rise, traders may move up their expectations for the Fed’s first interest rate hike into the H1 of next year.

So far, the market reaction to this strong report has been muted. The US dollar index briefly spiked to 88.30 before pullling back to its pre-GDP level of 88.20, while US equities are pointing to a slightly higher open and the benchmark Treasury 10yr bond yield is essentially unchanged at 2.30%.

Technical View: USDJPY

As my colleague Chris Tedder noted earlier today, USDJPY has already pulled back on the back of some divisive BOJ minutes from today’s Asian session. The minutes showed that last month’s decision to expand its QE program was hotly-contested, decreasing the likelihood of any further central bank stimulus in the near term.

After surging all the way to 119.00 last week, USDJPY has primarily moved sideways around the 118.00 handle so far this week. Rates have been rising consistently within a bullish channel since the start of the month, though the pair is looking more vulnerable after setting a short-term lower high yesterday. As we go to press, the 4hr MACD continues to moderate toward the “0” level, showing declining bullish momentum.

The failure to rally meaningfully on the back of today’s strong GDP figure suggests that dollar bulls may finally be growing tired, though prudent traders may want to wait for a confirmed break below horizontal support and the bullish channel at 117.50 before shifting to a bearish outlook. A break below this floor could open the door for a deeper pullback toward 117.00, 116.00 or even the 23.6% Fibonacci retracement at 115.72 in time. On the other hand, a move above 118.55 resistance would alleviate any concerns for bulls and suggest a move toward 119.00 or key psychological resistance at 120.00 could be next.