USDJPY – Is the Rally Over?

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Market Drivers May 12, 2017
Majors in tight ranges
US Reaches deal wtih China
Nikkei -0.39% Dax 0.09%
Oil $48/bbl
Gold $1229/oz.

Europe and Asia:
EUR IP 1.9% vs. 2.3%

North America:
USD CPI 8:30
USD Retail Sales 8:30

It was an exceedingly slow night of trade with most majors trapped in 20 pip ranges for most of Asian and European trade on the last trading day of the week.

The markets are clearly just treading water until the US session when both US CPI and Retail Sales should hit the tape. With yesterday’s PPI data printing hotter than forecast, chances are that US inflation gauges have perked up. The market is looking for jump back to 0.2% from -0.1% in the core readings.

The inflation data however, is likely to take backstage to the retail sales numbers. US consumer demand has been very uneven with retail sales missing their forecast the last two month in a row. Indeed, the US consumer is the weakest link in the US economic growth story. Part of the reason may be due to subdued wage growth, but another part has to do with the fact that most US consumers are preferring to service debt rather than pursue any additional spending.

If this month’s data proves disappointing – or worse if the number once again prints negative – the bullish dollar narrative for three more rate hike from the Fed will become increasingly more problematic. USDJPY has already hit some resistance around the 114.00 level and could not push past it in yesterday’s trade. If today’s numbers miss their mark, profit taking in the pair could begin in earnest and USDJPY could quickly drift towards the 113.00 figure as the week comes to a close.

On the other hand if the data proves in line and better, it will be interesting to see if the bulls could push the pair beyond the 114.50 mark. USDJPY has risen more than 800 pips off the lows and all signs are starting to point to a correction as the rally looks like it is running out of gas.

Boris Schlossberg
Managing Director

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