Disappointing US Data Drags the USD/JPY Below a Rising Channel

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Disappointing US Data Drags the USD/JPY Below a Rising Channel

Today (4/15) we saw manufacturing data out of the US, and they disappointed, sending the USD lower across the board. Let’s take a look at the data set and the reaction in USD/JPY as well as the technical implications.

Empire State Manufacturing Index (Apr.): -1.2
Forecast: 7.2
Previous: 6.9

Capacity Utilization Rate (Mar.): 78.4%
Forecast: 78.7
Previous: 79.0

Industrial Production m/m (Mar.): -0.6%
Forecast: -0.3%
Previous: 0.1%
ind_prod_march
(click to enlarge; source: forexfactory.com)

So far in 2015, US economic data has been soft, going against what the FOMC projected. Manufacturing in March and April also slowed, reflecting declining expectations of demand. This trend has already made it highly improbable that the interest rate hike will be in mid-year, and question whether the FOMC will do it by year’s end. The market has been pricing in a rate hike throughout 2014, but traders have become tentative and cautious about buying more USD. The USDJPY for example continues to consolidate since early December.

USD/JPY 4H Chart 4/15
usdjpy4h04152015
(click to enlarge)

In the 4H chart, we can see that traders are fading USD/JPY after today’s weak data. The pair fell below a rising channel that started in Late March from around 118.30. Now, price is poised to test that low, with risk of extending lower in the short-term.

USD/JPY Daily Chart 4/15
usdjpyday04152015
(click to enlarge)

The daily chart shows that price is essentially heading towards the “central pivot” of the multi-month consolidation range since December between 115.56 and 122. If price crosses below the 118 line, pressure will fall towards the 115.56-116 support area. This is still a short-term bearish outlook in a medium-term neutral mode, and in an intact uptrend in the long-term since 2011/2012.

Now, if price falls below 115.50, then we have topping, and a possible bearish outlook in the medium-term, but because the long-term trend is still bullish, we should limit the outlook to the psychological level of 110, which is also a previous resistance area from Oct. 2014.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.