USD/JPY: Tokyo consolidates sharp break higher through key 200-D SMA

  • USD/JPY: finally breaks the 200-D SMA and US yields break up to fresh highs as well.
  • USD/JPY: Japanese economy in contraction, underpins divergence bid.

USD/JPY is mixed in the open of Tokyo after bulls bought the 19-pip in early Asia to 110.19 support area and a follow through on the Japanese GDP that contracted for Q1. Currently, USD/JPY is trading at 110.33, down -0.02% on the day, having posted a daily high at 110.40 and low at 110.20.

USD/JPY has been on the bid and was threatening the 100.00 psychological level in London until NY came online where the dollar ripped higher and crossed the threshold of the 200-D SMA at 110.16 vs the yen on solid US retail sales that met expectations at 0.4%. At the same time, US 10 year yields surged to 3.09%, (highest since July 2011), and broke the Jan 2014 highs of 3.03%. The pair went on to score a high of 110.45 in the NY afternoon before dropping back to 110.25 on profit-taking for a close of 110.33.

Japanese GDP contracts and underpins upside in USD/JPY

As far as domestic data went, Japan's Q1 GDP (prelim) arrived -0.2% q/q vs the expected flat at 0.0% and adds to the consensus that indeed the BoJ is on hold for the foreseeable future, underpinning the divergence trade between the two Central Banks. (The Fed fund futures yields are continuing to predict a rate hike in June, plus one more by year end and <50% chance of another).

USD/JPY levels

USDJPY: Sidelined – look to buy dips

Valeria Bednarik, chief analyst at FXStreet explained that the 4 hours chart shows technical indicators have lost upward momentum at overbought levels:

The price is firmly above bullish moving averages and away from the daily ascendant trend line coming from early April. Furthermore, the pair is a few pips above its 200 DMA for the first time since early January. 110.47, February's high is the immediate resistance with a break above it favouring a continuation up to the 111.20/60 region."

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