USD/JPY Unaffected by the Expectedly Negative US GDP Data

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USD/JPY Unaffected by the Expectedly Negative US GDP Data

The key fundamental risk today was the preliminary reading of US Q1 GDP data. This release is the second release, and follows the “advanced” reading.

Prelim GDP q/q (Q1): -0.7% (annualized)
Forecast: -0.8%
Advanced GDP: 0.2% (revised from 2.2%)
us gdp q1 advanced
(click to enlarge; source: forexfactory.com)

The economy contracted at a rate of -0.2% in Q1 according to the “preliminary” reading, a drastic revision from the 0.2% estimate from the preliminary “advanced” reading.

According to the Bureau of Economic Analysis (BEA), “The decrease in real GDP in the first quarter primarily reflected negative contributions from exports, nonresidential fixed investment, and state and local government spending that were partly offset by positive contributions from personal consumption expenditures (PCE), private inventory investment, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.”

Despite the huge downward revision, the USD was not dragged down as one might expect. An explanation would be that the market already expected a downwards revision into negative territory and priced this in weeks ago. Along with this explanation is the fact that the FOMC already explained that the slowdown in Q1 would be temporary. Thus, the focus is no longer on Q1 data, but on Q2 data.

USD/JPY for example was unmoved by the data.

USD/JPY 1H Chart 5/29
usdjpy 1h chart 5/29
(click to enlarge)

The USD/JPY remained in consolidation, and in fact reacted with a slight bullish bias. Note that price avoided the consolidation low, continuing to make higher lows. Also, the pair is back above the 50-hour SMA after testing it in the previous session. Furthermore, he 1H RSI held above 40, which reflects maintenance of the bullish momentum.

Basically, the GDP data was not bad enough to drag down an already bullish USD/JPY, which is poised to test the 124.45-124.50 area with risk of extending higher. The 130 handle is the next key level to monitor for resistance, but the 2001/2002 high around 135.15 would also be in sight in the medium-term, unless Q2 data continues to be a drag like Q1 data.

To the downside the 123.30-123.50 area appears to be a key support in the short-term. A break below can open up a short-term consolidation or bearish correction.

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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.