Daily Forex Signals 18.05.2017
USD/JPY: Profit taken on short position, strong growth in Japan's economy
Macroeconomic overview: Japan's economy expanded at an annualised rate of 2.2% in January-March, posting a fifth straight quarter of expansion led by solid exports and private consumption. The preliminary reading for first-quarter GDP was better than market expectations for 1.7% growth.
Compared to the December quarter 2016, private consumption rose 0.4%, following a stagnation in the previous period and adding 0.2 percentage point to growth. Private non-residential investments/ capital expenditure unexpectedly increased by 0.2%, after declining 1.9% in the December quarter. Private residential investment grew by 0.7%, faster than a 0.4% rise in the fourth quarter.
External demand added 0.1 percentage points to growth, as exports of goods and services rose 2.1% (from 3.4% in the previous three months) while imports went up 1.4% (from 1.3%).
Positive data should offer some relief to Bank of Japan policymakers, who hope the economy is now gathering enough momentum to drive up inflation that remains stubbornly below their 2% target.
The economy marked the fifth straight quarter of expansion, the longest growth run since a six-quarter streak through 2006, when the BOJ was exiting from its previous quantitative easing programme on signs of strength in the economy.
The dollar recovered slightly against the yen in Asian trading after a combination of recently poor U.S. data and revelations about the investigation of Trump's ties to Russia drove its biggest daily fall since last July. But it was quickly back on the defensive in early European deals.
Technical analysis: The USD/JPY relapsed to register a daily close below the cloud, adding to the underlying bearish bias. The drop has broken 110.52 (61.8% fibo of April-May rise). Bulls would have to break back above the cloud top (currently at 112.12) in order to gain a foothold in the market. But in our position more likely scenario is further USD/JPY drop.