USD/JPY: Flag breakout elusive despite the drop in Japanese exports

USD/JPY has created a bull flag, a bullish continuation pattern, on the hourly chart, but so far, the breakout has remained elusive.
Japan's imports fell more than exports, leading to a trade surplus in February. The drop in the outbound shipments from the world's third-largest economy has failed to put a bid under the greenback.
The flag could be breached on the higher side if the risk assets remain bid and Japan's industrial production, scheduled for release at 04:30 GMT, prints below estimates.

Omkar Godbole FXStreet Contributor

USD/JPY is currently trading at 111.51, having hit a high of 111.58 a few minutes before press time.

On the hourly chart, the pair is having a tough time beating the upper edge of the flag - a continuation pattern, which often ends up accelerating the preceding bullish move - even though the Japanese data released earlier today painted a dismal picture of the world's third-largest economy.

The nation logged a goods trade surplus of 339.0 billion yen in February, beating the expected surplus of 310 billion yen.

The better-than-expected trade surplus, however, was the result of a 6.7 percent drop in imports and a 1.2 percent fall in exports.

Notably, the drop in imports indicates that domestic demand is not strong enough to compensate for the weakness in the external sector, meaning the Japanese economy could see a deeper slowdown in the near future.

Even so, the dollar is struggling to pick up a bid, possibly due to 0.14 percent drop in the S&P 500 futures.

The pair will likely rise well above 111.58 later today, confirming a flag breakout, if the futures turn positive. The anti-risk JPY may also take a beating if Japan's industrial production prints below estimates. The data due at 04:30 GMT is expected to show that factory activity contracted 3.7 percent in January.

Technical Levels

1. R3 112.32
2. R2 112.11
3. R1 111.79
PP 111.59
1. S1 111.27
2. S2 111.06
3. S3 110.75

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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