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USDJPY Probes Monthly Lows on Disappointing US Data

USDJPY Probes Monthly Lows on Disappointing US Data

2019-05-15 14:45:00
Peter Hanks, Junior Analyst
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USDJPY Price Outlook:

  • Disappointing data from the retail and industrial sectors worked in tandem to weigh on the economic outlook for the United States
  • In turn, USDJPY probed monthly lows slightly above 109
  • 2-year Treasury yields slip to their lowest since February 2018 as the odds of a rate cut mount

USDJPY Probes Monthly Lows on Disappointing US Data

April retail sales and industrial production data disappointed Wednesday morning, shattering optimism regarding a potential rebound in retail data after April’s print came in -0.4% beneath expectations, -0.2% versus 0.2%. Industrial production data was similarly disappointing, -0.5% versus 0.0% expected. Consequently, the odds of a rate cut have soared, and the Fed’s policy path remains a major trading theme to watch. In turn, USDJPY traded near monthly lows and the 2-year US Treasury yield slipped to the lowest since February 2018.

CME Fed Watch Tool

USDJPY Probes Monthly Lows on Disappointing US Data

Source: CME

USDJPY Probes Monthly Lows

USDJPY was narrowly above monthly lows around 109.02 after retracing Tuesday’s bullish move which tested the 50% Fibonacci level around 109.67. Should USD weakness persist and send the pair beneath 109, the door opens for a continued move lower – possibly to the 38.2% Fib level at 108.52. With an uncertain outlook for US economic growth and rising probability of a rate cut from the Federal Reserve, continued USD weakness versus the Yen appears likely for the time being.

USDJPY Price Chart: 4 - Hour Time Frame (February 2019 – May 2019) (Chart 1)

USDJPY price chart

Bonds Rise, Yields Falter

As the demand for safety increased, 2-year US Treasury yields slipped to their lowest since February 2018 – around 2.15%. Faltering yields also resulted in a re-inversion of the 10-year and 3-month yield curves. That said, the more widely-watched 3m5s and 2s10s have yet to invert. Still, Treasury yields will remain a widespread concern for investors as they have in the past.

View A Brief History of Trade Wars to read about the precedents set in prior economic conflicts.

Upon the initial inversion in March, recession fears were heightened and many investors warned of a stock market crash. Since then, such fears have calmed, but another inversion and a reignited US-China trade war could work to weigh on investor sentiment once more.

USDCNH: Why 7.00 is the Spot to Watch in the US-China Trade War

US 2-Year Treasury Yield Chart: Daily Time Frame (February 2018 – May 2019) (Chart 2)

yield curve inversion chart

3-month, 10-year yield inversion overlaid in red

That said, optimism may outweigh fear in the interim as President Trump announced a delay on imposing auto tariffs on the European Union. In response, USDJPY has retraced much of its earlier weakness alongside a early-morning recovery rally in US stocks.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more: S&P 500 Outlook: ETF Flows Suggest Flight to Currency Market

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