Key Levels - USD/JPY
- Support 110.00
- Resistance 112.50
The first quarter has come to an end and it was a tough one for the U.S. dollar. Even a rate hike by the Federal Reserve failed to stem the slide in the greenback, which lost approximately 5% of its value against the Japanese yen and Australian dollar. The lack of urgency among U.S. policymakers to follow up the March hike in June was the main cause of the weakness but the failed health care bill, tax reform uncertainty and mixed data also contributed to the move. On Friday we learned that personal income and spending growth slowed in the month of February with inflationary pressures easing according to core PCE. Manufacturing activity in the Chicago region accelerated which along with healthier data Monday to Thursday helped USD/JPY end the week higher. This included stronger GDP growth, narrower trade deficit and a sharp rise in the Conference Board’s consumer sentiment index. Its also worth noting that the greenback managed to shrug off a report that President Trump is studying ways to “penalize currency manipulators” as part of his goal to fight unfair trade. These measures would be aimed at pressuring other countries to strengthen the value of their currencies at the expense of the U.S. dollar.
Looking ahead USDJPY has resistance at 112 and support at 111. It will be a big week for the U.S. dollar with ISM reports, minutes from the most recent FOMC meeting and nonfarm payrolls scheduled for release. If the minutes confirm that the Fed is in no rush to raise interest rates again, the dollar could retreat but if they contain a general tone of optimism, we could see 113 in USD/JPY. With that in mind, NFPs is the most important piece of data to watch because economists are looking for slower job growth. If they are right, it could be a nail in the coffin for the dollar, leading to lower trading in the next few weeks.