Japanese Yen Shows Strength Despite GDP Dip

The Japanese Yen has performed strongly even with disappointing GDP data. In early 2023, the GDP declined by 0.2%, which was worse than the expected 0.1% drop. In the previous quarter, the economy had grown by 0.6%. Notably, the Yen excelled against the Swiss Franc in currency trading. The USD/JPY pair dropped from a recent peak of 148.54 to around 145.00. Support can be found at the 20-day EMA near 145.20. The RSI is having difficulty breaking above 60.00, indicating possible upward momentum. If the price moves above 148.57, it could reach around 150.00. However, if it falls below 142.42, we may see dips toward 139.90 or 137.25. The USD/JPY pair has stabilized around 145.00 after a brief surge near 148.50 earlier this month. The price has pulled back but remains steady above the psychological 145.00 level, which serves as short-term support. As this support holds, traders should focus on how the price responds around this area. Markets were expecting a slight contraction in Japan’s economy for the first quarter, and while it did decline, the drop was less severe than anticipated. Typically, weaker economic news can lead to a decline in the local currency, especially after a stronger previous quarter. However, the Yen defied expectations by strengthening, particularly against the Swiss Franc. This suggests that global concerns are driving capital flows more than local data. Meanwhile, the US Dollar is stable after losing some ground initially. The DXY is hovering around 100.80, indicating a lack of clear direction in the broader Dollar market. Traders are closely monitoring economic data, particularly the preliminary Michigan sentiment reading for May, especially after April’s figure fell to 52.2. These numbers are significant as they reflect consumer confidence and influence expectations for central bank policies. If consumer sentiment continues to decline, it could impact interest rate forecasts.

Technical Analysis of USD/JPY Levels

Murata’s GDP report shows an unexpected return to contraction for Japan, indicating that the economy is struggling. Although last quarter’s growth was positive, this reversal indicates uneven momentum. This situation may compel the Bank of Japan to remain accommodative and avoid tightening too quickly. In contrast, the Federal Reserve in the US has maintained high rates with ongoing inflation concerns. This divergence continues to influence the larger trend in USD/JPY. From a technical standpoint, resistance around 148.50 remains strong. Momentum indicators like the RSI have struggled to rise above the 60.00 mark, suggesting that buying pressure may not be sufficient to drive prices higher. However, as long as the price stays above 145.00, the potential for upward movement remains. If buyers can push past 148.57, we could see the price approach 150.00, a level not reached since late 2022, likely attracting central bank interest. If sellers take control, we will be watching 142.42 as the first key support level. If that level fails, 139.90 could be the next target, followed by 137.25. For now, trading appears to be confined within this range, reflecting a cautious approach, particularly as macroeconomic conditions remain uncertain. We will continue to observe yield spreads between Japanese Government Bonds (JGBs) and US Treasuries. A wider spread favors the Dollar, unless there is a sudden shift in risk sentiment. Upcoming sessions, especially with new US consumer data and comments from the Fed, are likely to provide further clarity. Until then, timing trades carefully and respecting established support and resistance levels is crucial. Create your live VT Markets account and start trading now.

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