Will the US GDP Data Liberate USD/JPY from its Range?

Will the US GDP Data Liberate USD/JPY from its Range?

In the past couple of weeks, USD/JPY pair has been consolidating roughly between 117.20 and 118.85. Some would say that there’s a bit of coiling, or congestion as the resistance level becomes lower and lower. The support level however has been relatively flat.

USD/JPY 4H Chart 1/30
usdjpy 4h chart 1/30
(click to enlarge)

Hawkish Fed: The consolidation range held its integrity even after the hawkish FOMC statement, which provided an optimistic view on the economy and essentially stays course with the plan to raise rates by mid-year.

US Q4 GDP Ahead: The next key fundamental factor will be today’s (1/30) US GDP data. It will be the advanced estimate of GDP growth in Q4, 2014, annualized. The forecast is for a print around 3.0%. The reading for Q3 was 5.0%.

Breakout Scenarios:
The market probably wants to make sure that Q4 growth was not terrible and that the FOMC had some justification in looking forward to strong economic improvements in 2015.

A reading below 2.0% might cause some doubts and keep the USD/JPY from pushing above 118.85. A break below 117.20 would then open up the 115.56-115.85 support area (seen in the daily chart).

A reading above 3.0% should reinforce the FOMC’s statement that the economic recovery is on track.This should put pressure on the 118.85 high. A break above this resistance should open up the 120 handle. Just below it, price will be challenging a falling triangle resistance (seen in the daily chart).

If the reading is 2-3% and the price action breaks above 118.85, looks for resistance at 120. If price breaks below 117.20 instead, look for support at 116, 115.85. The idea is that a slight disappointment should keep the USD/JPY in the descending triangle seen in the daily chart, while a reading below 2.0% increases the risk of breaking below the triangle, and a reading above 3.0% increases the risk of breaking above the triangle.

USD/JPY Daily Chart 1/30
usdjpy daily chart 1/30
(click to enlarge)

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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.