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  • USD/JPY fell to 111.43 at the end of last week and settled in the 111.50s.
  • US 10yr treasury yield dropped in response to US GDP details.    
  • A failed attempt to break higher, however, increased the chances of a downward move.

USD/JPY fell to 111.43 at the end of last week and settled in the 111.50s following a brief spike to the 112 handle on the GDP data that was subsequently faded due to implications within the detail of the report that weighed on both the dollar and US yields on Friday.  

While US Q1 GDP grew 3.2% annualised in Q1, beating even the most bullish forecasts, other key underlying growth supports such as consumer spending and business investment slowed; as noted by analysts at Westpac:

“Final sales to private domestic purchasers, a better gauge of underlying momentum that excludes government, trade and inventories, cooled to a 1.3% annual pace, the slowest since 2013. Consumers were rattled by volatile markets and the government shutdown in early 2019 and there may be a waning of the tax cut boost too, though a strong labour market should leave the consumer on an even keel in 2019. The price deflators confirm benign inflation, the core PCE index rising 1.3% annualised in Q1 – below expectations.”

As a result, the US 10yr treasury yield dropped in response due to the fall in the inflation indicators. Yields fell from 2.54% to 2.49% while the 2yr yield dropped from 2.32% to 2.27% to print a one-month low.

The week ahead

First up, we have China’s PMI on Tuesday where markets will look for signs of a continued rebound in manufacturing activity. Then, attention turns to the U.S. for ISM manufacturing, FOMC rate decision and  nonfarm payrolls.  

FOMC outlook

Analysts at ANZ offered their outlook on the FOMC this week:

“This week’s FOMC meeting will, once again, garner plenty of market attention. A consistent improvement in the US data pulse of late has led many commentators to reduce the odds of future rate cuts in the US. That said, a benign inflation backdrop has allowed many to maintain their arguments for future rate cuts. Current pricing suggests that the market is not expecting the Fed to move its policy rate at this week’s meeting but the tone and comments of the upcoming statement will be important. The market will be eager to hear the Fed’s assessment of current economic backdrop where domestic growth is strong but inflation continues to slow.”

USD/JPY levels

Technically, the pair has little to offer, according to Valeria Bednarik, Chief Analyst at FXStreet, with it holding within familiar levels for a third consecutive week:

“A failed attempt to break higher, however, increased the chances of a downward move during the upcoming days. In the daily chart, the pair settled below its 20 DMA Thursday and was unable to regain the indicator in the last trading day of the week, now battling with a flat 200 DMA. The 100 DMA in the mentioned chart heads south at around 110.80, while technical indicators turned horizontal around their midlines, leaving a neutral-to-bearish stance. Shorter term, and according to the 4 hours chart, the technical stance is the same, as the price settled below its 20 and 100 SMA, but above a flat 200 SMA, this last at 111.35, while technical indicators lack directional strength but hold in negative territory.”