USD/JPY Rally Halted And Everything Depends On The NFP Now

This was the week: Upbeat US GDP, Asian tensions, steady Fed, and trade

After a slow start within the known ranges, US GDP sent the greenback higher. The economy grew by 2.6% annualized in Q4 2018, better than had been expected. The report served as a relief to markets which had been worried that the US consumer was not keeping up.

The market calm gave another boost to USD/JPY as demand diminished for the safe-haven yen. Earlier, the haven yen saw demand due to the rising tensions between India and Pakistan. The South Asian nuclear nations clashed on the ground in Kashmir and the air. Pakistan’s announcement of the release of the captured Indian pilot helped calm tensions.

US President Donald Trump met North Korean Leader Kim Jong-un. The encounter failed as significant gaps separated both sides. The initial concern about the abrupt end to the talks was replaced by the news of ongoing negotiations.

Negotiations between the US and China have received contradicting reports. On the one hand, US Trade Representative Robert Lighthizer said that China’s increased buying of US goods is not enough to seal a deal and that structural changes are needed. On the other hand, White House Adviser Larry Kudlow said the talks are on the cusp of a “historic agreement.”

Fed Chair Jerome Powell gave lengthy testimonies on Capitol Hill. He reiterated the pledge to remain patient on interest rates and signaled an end to the balance sheet reduction program by the end of the year. He topped it off by another speech in which he said the US economy is “in a good place“.

The mix of upbeat US data but no rush to raise rates is the perfect mix for USD/JPY but dark clouds arrived late in the week. The ISM Manufacturing PMI fell to 54.2 points indicating a slowdown and serving as an adverse hint to the upcoming NFP.

In Japan, the early reports of inflation from the Tokyo region came out slightly above expectations with the CPI ex Fresh Food figure accelerating to 1.1% YoY. This is nonetheless a meager growth rate, and the Bank of Japan remains bearish.

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