USD/JPY fundamental mover

Japan’s economy contracted 1.8%, a sharper decline than the forecast of -1.7%. This marked the first decline in five quarters, and points to weakness in the Japanese economy. The BoJ joined the Federal Reserve and other major banks in a coordinated move to enhance their dollar swap lines. This move was aimed at maintaining liquidity in order to ease the strain on global funding markets.

In the U.S., the Fed slashed rates at the start of the week, from 1.25% to 0.25 percent. This emergency cut was in response to the meltdown in the financial markets. Later in the week, the Fed announced it was establishing a Commercial Paper Funding Facility, in order to keep credit flowing to the economy. On the manufacturing front, the Empire State Manufacturing Index plunged by -21.5 points, compared to the forecast of +5.1 points. Core retail sales fell by 0.4%, while retail sales declined by -0.5%.

USD/JPY Technical Analysis

With USD/JPY posting sharp gains, we start at higher levels:

• 113.40 was the peak in October 2018.
• 112.73 has held in resistance since December 2018. This is followed by 112.25.
• 111.69 was tested in mid-February.
• 110.62 is an immediate support level.
• 109.73 has switched back to a support role after sharp losses by USD/JPY last week.
• 108.70 is next.
• 108.10 remains relevant.
• 107.30 is the final support line for now.

USD/JPY Daily Chart

I am bearish on USD/JPY

The Japanese yen is a safe-haven asset, but investors continue to snap up U.S. dollars, which has enjoyed broad gains. China is a close trading partner of Japan, and the COVID-19 outbreak has taken a heavy toll on the Japanese economy.