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USD/JPY Whipsaws, Following Disappointing Japanese GDP Print

David Becker
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USD/JPY Whipsaws, Following Disappointing Japanese GDP Print

The USDJPY whipsawed and then rebounded from fresh trend lows in volatile trade following the disappointing Japanese GDP outcome, which unexpectedly dropped by 1.6% in the preliminary reading for Q3, well below 2.2% median forecast and after diving 7.3% in Q2. The back to back negative GDP prints puts the Japanese economy officially in recession.

The currency pair initially spiked to a new seven-year peak at 116.90 following the data release before turning tail and dropping some 150 pips to a low of 115.45. The drop came as Japanese stocks dove sharply, as risk appetite shrank. Japan Economic Minister Amari admitted that the impact of the first sales tax hike was larger than expected and that the cabinet will carefully scrutinize a second hike in a consumption tax.

The Japan GDP growth contracted 1.6% in the preliminary reading for Q3 much worse than expected. Weakness was in residential and non-residential investment. Private consumption bounced only 1.5% following the 18.6% Q2 plunge. Gross national income slid 1.6% after dropping 5.3% previously. The data are a big blow to Prime Minister Abe and will make the second tax hike difficult for the government to implement.

The USDJPY seemed to hold support near the 10-day moving average at 115.25m, after testing a new trend high at 116.90. The outside day, where the high is greater than the prior days high and the low is less than the prior days low is generally a bullish sign if the close is also higher. Momentum on the currency pair remains positive as the MACD (moving average convergence divergence) index printing in the black. The RSI on the other hand remains at a reading of 80, which is well above the overbought trigger level of 70 and could foreshadow a correction.

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