USD/JPY: Sideways above cloud support awaiting a catlyst

• USD/JPY is in a tight chop above the  cloud having based at a low in the  109.70s.  
• USD/JPY is currently trading at 110.44, within a range of between 110.42 and 110.66.

USD/JPY has grounded at the aforementioned lows with a slight tendency for the downside in Tokyo. Overnight, markets, however, were risk-on and the yen gave background as the greenback marched ahead on the 97 handle, despite yet further disappointing data. Stocks were all ending on the green, around 0.7% up in the benchmarks.  

• The Dow Jones Industrial Average DJIA, added 140.90 points, or 0.6%, to 25,657.73 although had been up by as many as 200 points during the session.  
• The S&P 500 index SPXadded  20.10 points, or 0.7%, to 2,818.46, with financial and energy shares leading the gainers.  
• The Nasdaq Composite put on 53.98 points, or 0.7%, to close at 7,691.52.

The greenback was advancing from the midpoint of the 96 handle and when on to make a high of 96.85 surrounded by an hourly bullish Ichimoku cloud formation and forming an ascending channel with a target on the 97 handle, albeit with momentum spent according to stochastics.

The US 10yr treasury yield was consolidated and stuck to within a tight range of 2.40% and 2.45% following a heavy decline commencing last Friday on poor European and US data. The 2yr yield was also confined to a 5 bp range of between 2.25% and 2.30%. However, the  Fed  funds futures prices are now implying a 90% chance of a Fed rate cut by December.

The US yield curve has inverted, raising fears that a recession is around the corner.  However, analysts at ANZ Bank argued that although the yield curve’s track record as a predictor of recession is good, a number of other indicators suggest that there is still life left in this cycle. “It is hard to knock the US economy over unless the household is derailed. The latter doesn’t seem likely as its balance sheets are healthy and a solid labour market is providing a good backdrop for incomes.”

US data disappoints again

As for data, the Conference Board’s consumer confidence index dropped to 124.1 in March from 131.4 – This was the fourth decline in the last five months. Elsewhere, the Richmond Fed’s manufacturing index also fell within line of expectations by 10 in Mar from 16 in Feb. As for Housing starts, these were highly disappointing considering the fall in Feb, -8.7%, (est: -1.6%).  

USD/JPY levels

Valeria Bednarik, Chief Analyst at FXStreet explained that the pair is settling at around the 38.2% retracement of its latest daily slump after touching the 50% retracement of the same slide at 110.70, with a mildly positive stance in the short-term:

“In the 4 hours chart, the pair continues developing below the 100 and 200 SMA, suggesting that longer-term advances are still in doubt, but broke above its 20 SMA, now flat around 110.25. Technical indicators recovered ground, the Momentum maintaining its bullish slope and the RSI now flat at around 50, failing to confirm additional gains ahead, to be more clear if the pair surpasses the mentioned 110.70.”