- After printing an almost perfect double top on Wednesday at 106.20, USD/JPY has continued it to reverse lower on Thursday.
- The pair is now trading in the 105.60s as focus turns to Japanese and US PMI data.
After printing an almost perfect double top on Wednesday at 106.20, USD/JPY has continued it to reverse lower on Thursday and is now trading in the 105.60s, just ahead of session lows at bang on 105.60. Aiding the pair bounce at the 105.60 mark was support in the form of the Tuesday Asia Pacific high at 105.63, and also perhaps some buyers coming in ahead of the pair’s 200-day moving average which resides at 105.53. The pair closed Thursday FX trade 0.2% or just under 20 pips lower.
Driving the day
The fact that Thursday’s US data releases were much less impressive than the blowout Retail Sales and PPI numbers reported on Wednesday perhaps goes some way to explaining why USD was unable to gain further traction. For reference, Housing data for January was mixed, with Housing Starts beating and Building Permits missing consensus. Weekly Initial Jobless Claims (for the week ending on 13 February) was disappointing, coming in at 861K versus forecasts for a 765K and the prior week’s number was revised higher by over 50K to 848K. The Philadelphia Fed Manufacturing survey taken this February was strong (as was the NY Empire State survey earlier in the week), boding well for Friday’s preliminary February Markit PMI survey report. Finally, Export and Import Price numbers showed much higher than expected trade price growth in the month of January.
Net-net, Thursday’s data show that while the labour market’s struggles look to have continued into February, the recovery continues (hence the strong manufacturing survey and trade price data). Weak labour market data might be used as justification by fiscal doves as to the need to “act big” with regards to further stimulus (in other words, calling for the implementation of US President Joe Biden’s full $1.9T “rescue package”), but the data ought not impact the outlook for US fiscal or monetary policy too greatly.
Back to the price action; it is worth noting that much of the USD selling had actually occurred prior to the release of US data, however, after the Dollar Index (DXY) failed to break above 91.00. Significant strength in GBP is partially to explain for this dollar downside.
Continued stabilisation in US bond yields also seems to have favoured JPY versus the US dollar. 10-year yields were flat on the day, but are still up roughly 10bps on the week. Resultantly, though JPY was able to recover modestly versus the buck on Thursday, it is still down 0.7% on the week and is the worst performing G10 currency. As a reminder, the yen is particularly sensitive to movements in US bond markets given the Bank of Japan’s Yield Curve Control policy which keeps Japanese 10-year bond yields locked close to zero.
Looking ahead, Friday will see preliminary February Markit PMI report releases out of Japan and the US, the former to be released at 00:30GMT and the latter at 14:45GMT. Given the timely nature of these reports, FX market participants will watch them closely for more clarity on how the economic recovery is progressing in both countries. Ahead of the release of PMI data, Japan will also see the release of National CPI numbers for January.
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