USD/JPY: Consolidates below prior trendline support although US yields firming on Fed

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  • USD/JPY was ranging between 110.55 and 110.85 overnight, in a consolidation below a prior trend line support. 
  • USD/JPY is currently trading at 110.63 and within a narrow early Asian Friday range of between 110.61/78. 

USD/JPY is shaping up into a heavy looking formation on the charts, weighed upon by a neutral tone from the Fed and a disappointing run of US data from overnight trade. 

US data disappoints, underpinning the Fed on hold for longer sentiment

  • US durable-goods orders rising 1.2% in December, below the 1.4% expected
  • The Philly Fed manufacturing index fell to a seasonally adjusted reading of -4.1 from 17 in January.
  • New claims for jobless benefits dropped to a seasonally-adjusted 216,000 during the week ending Feb 16th missing expectations. 
  • The Conference Board’s leading-economic-indicators index declined 0.1% in January to 111.3, following no change in December.
  • Existing home sales fell 1.2% in January to a seasonally adjusted annual rate of 4.94 million homes – (the third straight month of declines)

Equally, uber dove St. Louis Fed president Bullard said normalization is coming to an end and the December hike may have gone too far. However, US yields were on the rise though which leant some support to the dollar and likely so as markets were expecting a slightly more dovish outcome in the FOMC yesterday. The US 10yr treasury yield rose from 2.64% in Sydney trade to 2.69%, while the 2yr yield rose from 2.50% to 2.53%. 

Key statements form FOCM minutes, (Source LiveSquawk):

  • Participants noted maintaining current target range for fed funds rate ‘for a time’ posed few risks at this point.
  • Staff gave options for ending balance sheet runoff in h2 this year.
  • Almost all officials wanted to halt b/sheet runoff in 2019.
  • Many officials unsure which rate moves could be needed in 2019.
  • Policymakers agree it is ‘important’ to be flexible in balance sheet normalization.
  • Policymakers agree it would be appropriate to adjust if necessary.
  • Several participants saw further hikes appropriate in 2019 if the economy evolved as expected.
  • Patient posture allows time for ‘clearer picture’.
  • – ‘few officials’ not concern over uncertainty not captured in dot plot;
  • – seen strong household data recently;
  • – officials note concerns over slowing growth, China;
  • – concerns over trade, shutdown, fiscal policy;
  • – seen some downside risks increase;
  • – officials note volatility, tighter financial conditions.

USD/JPY levels

Valeria Bednarik, Chief Analyst at FXStreet explained, from a technical point of view, the short term picture continues offering a neutral-to-positive stance:

 “In the 4 hours chart, the pair keeps developing above its moving averages, which offer modest upward slopes, as technical indicators hold within positive levels, the Momentum bouncing from its mid-line and the RSI directionless around 56. The pair could extend its decline once below 110.45, although it would need to lose 109.80 to turn bearish, while bulls could take over the pair on a break above 111.12, the yearly high.”

 

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