FX Week Ahead - Top 5 Events: Q2'19 Japan GDP & USD/JPY Rate Forecast
Japan GDP Overview:
- The Q2’19 Japan GDP report is due out on Thursday, August 8 at 23:50 GMT, and the data are expected to show a sharp slowdown in growth.
- USDJPY has lost a lot of ground in a short period of time; the technical damage done since July 31 has been enough to completely alter the near-term outlook.
- Retail traders have remained net-long since May 3 when USDJPY traded near 111.92; price has moved 4.8% lower since then
Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.
08/08 THURSDAY | 23:50 GMT | JPY Gross Domestic Product (Annualized) (2Q P)
With global trade concerns heating up thanks to the US-China trade war, countries dependent on manufacturing processes have seen a more difficult trade environment. Japan has been unable to avoid the collateral damage from the fallout of the trade war between the world’s two largest economies. According to a Bloomberg News survey, Q2’19 Japan GDP is due in at an annualized pace of 0.6%, down sharply from the 2.2% clip recorded in Q1’19. Even when looking at the GDP report from the quarterly periodicity perspective, there is little to like: 0.1% expected from 0.6%.
USDJPY Technical Analysis: Daily Timeframe (August 2018 to August 2019) (Chart 1)
In our July Fed meeting forecast, it was noted that “Fed rate cut odds have been the driving factor behind moves in US Treasury yields…we expect USDJPY price action around the Fed meeting on Wednesday to closely mirror that of the bond market.” Indeed, USDJPY has been trading in lockstep with US Treasury yields: the bearish outside engulfing bar in USDJPY on Thursday coincides with both the US Treasury 2-year and 10-year note yields falling to fresh yearly lows by Friday.
Now that USDJPY has fallen back below the descending trendline from the April and July highs, established an outside engulfing bar on August 1, dropped below the ascending trendline from the January and June lows, dropped below the 76.4% retracement of the 2018 high/low range at 106.97, and is on track to break the June low at 106.78…it is very obvious that a lot of technical damage has been done in a short period of time.
The precipitous drop in recent days has seen USDJPY price fall below the daily 8-, 13-, and 21-EMA envelope, with both daily MACD and Slow Stochastics have turned below their respective signal or median lines. Accordingly, the path of least resistance is lower for USDJPY, regardless of what happens with Q2’19 Japan GDP this week.
IG Client Sentiment Index: USDJPY Rate Forecast (August 2, 2019) (Chart 2)
USDJPY: Retail trader data shows 74.7% of traders are net-long with the ratio of traders long to short at 2.95 to 1. In fact, traders have remained net-long since May 3 when USDJPY traded near 111.92; price has moved 4.8% lower since then. The number of traders net-long is 18.8% higher than yesterday and 9.6% higher from last week, while the number of traders net-short is 33.1% lower than yesterday and 43.0% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDJPY prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDJPY-bearish contrarian trading bias.
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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher, email him at email@example.com
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.