Currency Analyst since 2010

USD/JPY chose its destination

By Elizabeth Belugina

During the past week the Bank of Japan left monetary policy unchanged. Many of the market players expected the central bank to ease policy amid low inflation and weak economic growth. USD/JPY strengthened almost to 112.00 on such expectations, so the following disappointment provoked a selloff to 107.00 mark. The US dollar, on its part, was hit by American lower than expected GDP growth in Q1, while the Federal Reserve’s meeting was balanced and didn’t provide much direction.

The BOJ will probably have to ease policy at some point this year, but we will probably see little action from Japanese authorities until G7 meeting in the end of May, as Japan won’t like being criticized for currency manipulation.

USD/JPY fell below this year’s lows in the 107.60 area, which used to provide support for the prices. Bearish engulfing candle is being formed on the weekly chart, so the pair is vulnerable for a decline to 105.00. Resistance is in 110.50/85 zone. Here the pair should find renewed selling interest. 

Next week Japanese economic calendar will be extremely light. There will be bank holidays from Tuesday to Thursday. It means that the pair will be extremely sensitive to the risk sentiment: watch China’s official manufacturing PMI on Sunday, as well as Caixin manufacturing and services PMIs on Tuesday and Thursday. Good data should help the greenback recover, while lower figures will pull it down.   

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