A rich economic calendar across the States, the final round of US-Chinese trade negotiations, and concerns about a repetition of the January flash crash riveted investors 'attention on the Japanese yen. From the minimum in 2019 levels, the USD / JPY quotes soared almost 7% amid growing global risk appetite and falling Forex volatility to the very bottom since 2014. Nevertheless, the situation changed slightly in April: despite continuing growth in global stock indices, interest in the safe haven flared up with a new force.
The release of data on US GDP for the first quarter cooled the ardor of dollar fans. The US economy may have expanded by 3.2%, but this was due to an increase in inventories and net exports. These temporary factors may not be drivers of growth, but their brake in April-June. In contrast, inflation slowed down from 1.8% to 1.3%, which increased the risks of a reduction in the federal funds rate in 2019 from 40% to 66%. Investors have been drawing parallels from 1995-1998, when the Fed, despite the booming GDP and the historical highs of the S & P 500, lowered rates, nodding at sluggish inflation and international risks.
For the first time in many years, divergence in monetary policy can play on the side of "bears" and not "bulls" on USD / JPY. The last meeting of the Bank of Japan left many questions. Why does the regulator predict that consumer prices in 2022 will grow by 1.6%, but at the same time declares that the overnight rate will remain at the current level, at least until March 2020? Is he ready to tighten monetary policy earlier than inflation allows? It should be noted that the use of the yield curve targeting practice made it possible for BoJ to buy less assets than it is declared. It seems that the peak of the quantitative easing program was passed in 2017.
Dynamics of asset purchases by Bank of Japan in the framework of QE
Despite the fact that Xi Jinping is ready to go along with Donald Trump and liberalize China's domestic market, ban illegal transfer of technology and limit non-market subsidies to state-owned enterprises, it's premature to talk about the end of trade wars. Washington is starting talks with Tokyo and Brussels, and Shinzo Abe's refusal to facilitate American farmers 'access to the agricultural market in the Land of the Rising Sun heightens the risks of new US import duties. This, in turn, stirs interest in safe-haven assets.
Along with the macroeconomic calendar and trade conflicts , investors should keep in mind long holidays in Japan. In January, the USD / JPY pair for a few minutes slipped by 4% in the witchcraft hour, and, fearing a repeat of the flash accident, speculators close their positions on the yen.
Technically, an internal bar appeared at the auction on April 26th. Breakthrough of its minimum near 111.4 will increase the risks of continuing the peak to the lower border of the upward trading channel. The Shark pattern can be activated, the target of which is 88.6% corresponds to 110. On the contrary, a breakthrough of the maximum of the inside bar near 112 will create prerequisites for the rally to continue to target by 161.8% according to the AB = CD model.
USD / JPY daily graph
