USD/JPY: Trading the Japanese GDP

The Gross Domestic Product (GDP)  measures production and growth of the economy. Analysts consider GDP one the most important indicators of economic activity. A reading which is better than the market forecast is bullish for the Japanese yen.

Here are all the details, and 5 possible outcomes for USD/JPY.

Published on  Wednesday at 23:50 GMT.

Indicator Background

Japanese GDP is released  quarterly and  as an important indicator  of the health and direction of the economy. Traders should pay  close attention to the GDP release and treat it as a potential market-mover, as an unexpected reading can affect the movement of USD/JPY.

The indicator slumped badly in February,  declining by  0.6%. This was well below the market forecast of  -0.6%.  The markets are  predicting a much better reading in May,  calling for an increase  of 0.9%. Will the  indicator rebound and climb into positive territory this month?

Sentiments and levels

The turmoil in Europe, particularly the deepening political  crisis in Greece,  continues to affect USD/JPY, with the yen attracting safe haven flows. On the other hand, the closure of Japan’s nuclear facilities, the better economic situation in the US and potential stealth intervention by the BOJ all support the pair. USD/JPY has exhibited choppiness throughout the month of May, and this pattern could continue, as the pair has been unable to sustain a break out in either direction. So, the overall sentiment is  neutral on USD/JPY towards this release.

Technical levels, from top to bottom: 81.80, 81.43, 80.60, 80.30, 79.60, and 78.30.

5 Scenarios

1. Within expectations:  0.3% to 1.2%. In such a scenario, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 1.3% to 1.6%: An unexpected higher reading can push the pair below one support level.
3. Well above expectations: Above 1.5%: An  unexpected surge in the reading  would help the yen, and a second support level might be broken as a result.
4. Below expectations: -0.1% to 0.2%:  A lower GDP figure than predicted could cause the  pair to climb and break one level of resistance.
5. Well below expectations:  Below -0.1%.  A  very  weak reading  would hurt the yen, and USD/JPY could break a second resistance level.

For more on the yen, see the USD/JPY forecast.