USD/JPY Little Changed Ahead of US Data
Tokyo (May 12) USD/JPY is essentially unchanged from Thursday’s North American close, currently holding near 113.85. The pair will likely maintain a dull tone heading into the release of inflation data and Retail Sales in the US at 08:30 ET. The US dollar index is experiencing similar dull price action ahead of the data, currently holding near 99.62, a loss of 0.03% from Thursday’s close.
US CPI for April is expected to show a reading of 0.2%, following a prior reading of -0.3% in March. Core CPI is also expected to come in at 0.2% following a prior reading at -0.1%. Stronger than expected readings, especially for underlying inflation, would boost the case for a rate hike in the US at the June 13-14 FOMC meeting. At present, Fed fund futures are pricing in an 83% probability of an interest rate increase in the US at the June meeting.
Retail Sales is expected at 0.6% following a reading at -0.3% in March. This report will be watched closely for signs of improvement, as recent data has been soft. Retail Sales ex-autos is forecast to come in at 0.5% versus a reading in March at 0.2%.
Business Inventories for March and the preliminary reading of the University of Michigan Consumer Sentiment Index for May are due to be released at 10:00ET today. Both tend to be low impact releases.
USD/JPY came under pressure during Thursday’s session following a strong move to the upside dating from mid-April, which lifted the pair more than 5%, to a 2-month high.
The pair became heavily overbought as a result of the advance, as indicated by the Stochastic, a price momentum indicator. The indicator remains at an overbought level and has produced a sell signal, warning of the potential for further consolidation heading into next week. However, given the upcoming data releases out of the US, volatility could increase over the near term.
In addition to the overbought condition, a source of downside pressure on USD/JPY, the yen was supported on Thursday by current account figures. Japan’s current account balance posted a stronger-than-expected surplus in March on solid income from overseas investments, maintaining a streak of uninterrupted monthly surpluses that has continued for nearly three years, according to a report from Reuters. The surplus of 2.91 trillion yen ($5.45 billion) was the 33rd straight month of surplus, Finance Ministry data showed.
On the downside, first support is now at Thursday’s low at 113.46, revised from the previous support level at 113.60. The next-lower support is at 113.00, representing former resistance at the high established May 4th. Typically, the ability to find support at a former area of resistance is a sign of strength. Thus, 113.00 will be watched closely should USD/JPY correct further.
Key support is at 112.00. As long as this area holds, the broader outlook for USD/JPY 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. This remains the current upside target for USD/JPY.
On the economic front, Japan did not release any economic data today. On Sunday, at 19:50 ET, April PPI will be released. The month-over-month figure is expected at -0.1% following a prior reading at 0.2%, while the year-over-year reading is expected at 1.8% following a reading at 1.4% in March. Machine Tool Orders will be released Monday at 02:00 ET. There are no major economic releases out of the US on Monday. Housing Starts and Building Permits are due Tuesday at 08:30 ET, while Industrial Production/Capacity Utilization will be reported Tuesday at 09:15 ET.
Source: EconomicCalendar
