USD/JPY Consolidates on the Heels of Tuesday’s Advance
Tokyo (May 10) USD/JPY has made a strong run to the upside since bottoming in April and is currently taking a breather from the advance. The pair is currently trading at 113.82, a loss of 0.16% from Tuesday’s North American close.
The dollar has been strong in recent sessions, as the market is expecting a rate hike at the June Federal Open Market Committee meeting. Fed fund futures have been pricing in nearly a 100% chance of a rate increase in June and a 63% chance of another increase at the December meeting, However, the US dollar index (DXY) did come under some pressure in overnight trading, following the dismissal of James Comey as FBI director by US President Donald Trump. DXY has since stabilized and is up marginally over Tuesday’s close.
USD/JPY became heavily overbought as a result of the advance from the April low and that overbought condition has been a factor since the latter part of April. Thus, the pair has been due for a period of consolidation or correction. In addition, USD/JPY is up against potential resistance at the 78.6% retracement level of the decline from the March high. Thus, chasing the market higher on Tuesday appeared to carry a high degree of risk.
Initial support, derived from the hourly chart, has been established at the 113.60 level. On a drop below here, 113.00 represents the next level of potential support. This level represents a former area of resistance established on May 4th.
Key support for the pair is at 112.00. As long as this area holds, the broader outlook will remain firmly bullish. The pair’s ability to decisively clear this level earlier this month, as well as break above the 61.8% retracement level of the March-April sell-off, increases the probabilities of an eventual complete retracement with a move to the 115.50 level.
In today’s session, at 01:00 ET, the preliminary Coincident Indicator and Leading Index for March were released. The Coincident Indicator came in at -0.6% following a reading at 2.0%, while the Leading Index, month-over-month, was reported at 0.8%, following a prior reading at 0.1%. Both are low impact reports. Later today, at 17:00 ET, Bank of Japan Governor Kuroda will speak. And, a 19:50 ET, Current Account data along with foreign bond buying and investments in Japanese stocks is due to be reported. There are no significant events on the calendar in Japan on Thursday.
In the US, MBA Mortgage Applications was released at 07:00 ET. It came in at 2.4%, as purchases and refinance applications increased. At 08:30 ET, April Import/Export Prices will be released and this will be followed by the April Treasury Budget at 14:00 ET.
The next high impact report out of the US is due tomorrow, with the release of April PPI at 08:30 ET. On Friday, volatility has the potential to increase, as CPI and Retail Sales, both for April, are due at 08:30 ET.
Source: EconomicCalendar
