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  • USD/JPY has stuck to a tight range in Asia in illiquid markets with both the Chinese and Japan out.  
  • USD/JPY is currently trading at 111.40 between a range of 111.37 and 111.46.

USD/JPY had advanced last month as the dollar picked up a bid while stock markets continued higher on prospects of unravelling geopolitical knots, particularly between the U.S. and China where promising discussions had taken place towards finding a sweet spot between the two nation’s trade deal requirements.

At the same time, the divergence between the U.S. economic growth and the rest of the globe’s has been compelling and has driven flows into the U.S. assets denominated in dollars all the while that the Fed is expected to remain in neutral allowing for developments to take their destined course without disrupting the projected domestic growth targets; Hence, higher stocks on Wall Street and a softer yen.

However, last week’s GDP was hardly promising in the detail and the dollar could be  subject to a pullback considering the overbought conditions it is balancing upon and the remaining data this week that is likely to  cause a material shift in sentiment one way or the other. What FX traders need is volatility and something to shake the dollar  out of the limbo state. We will see US manufacturing, both Markit and PMIs as well as the FOMC ahead of nonfarm payrolls   – That should do it.  

Meanwhile, the dollar was a touch softer overnight given the less inspiring US wage inflation data and Chicago PMIs.The disappointments there sent the US 10yr treasury yield from 2.55% to 2.50% while the 2yr yield ended up net lower at 2.26%, a one-month low – (The chance of a Fed rate cut increased from 90% to 100% according to Fed futures).

FOMC outlook

Analysts at Westpac offered an insight into today’s FOMC event:

“The FOMC meeting concludes with the rigidly phrased formal statement, plus Chairman Powell’s press conference, but no new forecasts. The federal funds rate is firmly on hold at 2.25-2.50% for some time but markets tilt towards a rate cut in H2, fully priced by Jan 2020. (Westpac expects no change this year). The statement should reiterate the strength of the labour market and might be more upbeat on growth than the previous line “growth of economic activity has slowed from its solid rate in the fourth quarter.” However, the decline in the Fed’s preferred inflation measure to just 1.6%yr in March should cause some concern.”

USD/JPY levels

Valeria Bednarik, Chief Analyst at FXStreet explained that the USD/JPY pair is at risk of extending its decline, as its finishing the day below its 200 DMA for the first time since April 10:

“Shorter term, and according to the 4 hours chart, the pair is bearish as it is developing below all of its moving averages and with the 20 SMA  already below the 100 SMA maintaining its bearish slope. The Momentum indicator in the mentioned chart lacks directional strength within negative levels, while the RSI indicator is barely bouncing from oversold readings,  not enough to interfere with the pair ´s downward potential. A break below 111.20 exposes 110.80 April’s monthly low, while below this last the bearish momentum will likely accelerate.”