Dollar/yen gained ground last week, as the pair recorded its highest weekly close since mid- December. Stocks rose, as investors remain optimistic on a deal between the U.S. and China.
In the U.S., consumer spending had a dismal January, with retail sales and core retail sales recording sharp declines.
USD/JPY fundamental movers
Japanese GDP rebounded in the fourth quarter with a gain of 0.3%, after a decline of 0.6% in the third quarter. Business and consumer spending improved, helping the economy expand. Exports rose 0.9% in Q4, the strongest growth in a year.
The sides completed a third round of talks last week, with U.S. Treasury Secretary Steven Mnuchin calling the negotiations “productive”. The key question is whether President Trump will suspend the March 1 deadline to impose new tariffs on China. The U.S. has threatened to raise tariffs on some $200 billion of Chinese goods from 10% to 25%, but Trump has said he could let the deadline pass if there is progress in the talks.
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Key news updates for USD/JPYUpdates:
USD/JPY Technical Analysis
With USD/JPY posting gains last week, we begin at higher levels:
114.25 was the high point in November. 114 is a round number and was a stepping stone on the way down. Close by, 113.80 was a resistance line in November.
113.15 was a swing high back in July. 112.25 provided support in early December and it defends the 112 level.
112.73, which was an important resistance line in October.
112.25 provided support in early December and it defends the 112 level.
111.65 was a swing low in October, Close by, 111.40 was another swing low in October.
The pair broke through resistance at 110.40 (mentioned last week), which was a swing low in late August.
Close by, 109.35 was a cushion in mid-July. 108.70 was a cushion early in the summer and 108.10 a swing low in late May.
107.50 capped the pair in early April. It is the final line for now.
USD/JPY Daily Chart
I am bearish on USD/JPY
The slowdown in China is weighing on Japan’s economy, as China is Japan’s largest trading partner. Japanese exports of car parts and electronics to China are particularly vulnerable to the slowdown in China, and if the trade conflict continues, Japan could find itself in a recession. At the same time, if trade tensions improve, this will raise risk appetite and make the safe-haven yen less appealing to investors.
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