USD/JPY – More Losses Ahead

USD/JPY – More Losses Ahead

USD/JPY – More Losses Ahead

After a relatively shallow 3 day rally, USD/JPY resumed its slide and we believe more losses are ahead. Fundamentally, this week’s U.S. economic reports have been mostly weaker. Between the surprise drop in retail sales, tepid CPI growth, contraction in industrial production and deterioration in consumer sentiment, the Federal Reserve has zero reasons to raise interest rates in April OR June. The only way that a rate hike would occur in June would be if retail sales rose 0.5% or more in each of the next 2 months AND wage growth accelerates AND inflation rises. But before investors even start considering tightening in June, they will likely need to contend with a dovish April FOMC statement that addresses the recent deterioration in the U.S. economy. So we expect the dollar to extend its slide in the coming days with USD/JPY looking particularly vulnerable after the recent earthquakes in Southern Japan.

Technically, USD/JPY has fallen back below its first standard deviation Bollinger Band which is a sign of the downtrend resuming. Resistance is at the psychologically significant 110 level and as long as USD/JPY remains below this level, a test of the April lows near 107.65 is likely.

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