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Aayush Jindal

Key Highlights

  • USD/JPY is facing a crucial resistance near the 108.20 and 108.50 levels.
  • Earlier this month, there was a break above a key bearish trend line at 106.50 on the daily chart.
  • The US GDP declined 5% in Q1 2020 (Prelim), more than the -4.8% forecast.
  • The US Personal Income is likely to decline 6.5% in April 2020 (MoM).

USD/JPY Technical Analysis

Earlier this month, the US Dollar staged a decent recovery above the 106.00 and 106.50 levels against the Japanese Yen. USD/JPY even broke the 107.00 level, but it is facing a strong resistance near 108.50.

Looking at the daily chart, the pair broke the 23.6% Fib retracement level of the key decline from the 111.71 high to 105.98 low. However, the pair seems to be facing a strong barrier near the 108.20 and 108.50 levels.

The 100-day simple moving average (red) is also near the 108.50 level to prevent gains. The next major hurdle is near the 108.85 level since it is close to the 50% Fib retracement level of the key decline from the 111.71 high to 105.98 low.

A successful daily close above 108.50 and 108.85 is needed for upside continuation. If not, the pair might start a fresh decrease towards the 106.50 and 106.00 support levels.

Fundamentally, the US Gross Domestic Product report for Q1 2020 (Prelim) was released by the US Bureau of Economic Analysis. The market was looking for a 4.8% decline the GDP.

The result was disappointing as the US GDP declined 5% in Q1 2020, according to the "second" estimate. The decline was mainly due to the spread of COVID-19 and governments stay at home orders.

The report added:

This led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations, and consumers canceled, restricted, or redirected their spending.

Overall, USD/JPY must break 108.50 to continue higher. Looking at EUR/USD and GBP/USD, both pairs gained bullish momentum after the US GDP release.

Upcoming Economic Releases

  • Euro Zone CPI for May 2020 (YoY) (Prelim) - Forecast +0.2%, versus +0.3% previous.
  • Euro Zone Core CPI for May 2020 (YoY) (Prelim) - Forecast +0.8%, versus +0.9% previous.
  • US Personal Income for April 2020 (MoM) - Forecast -6.5%, versus -2% previous.
  • Canadian GDP for Q1 2020 (Annualized) – Forecast -10%, versus 0.3% previous.