USD/JPY: demand on the 111 handle despite soft US data

USD/JPY is trading at 111.76 with a  high of 111.94 and a low of 111.20.

USD/JPY this week is all about the US. It is a busy schedule for the US calendar with a number of second tier data along with the FOMC meeting and nonfarm payrolls. The other major risk event will be the French elections to top it all off. 

• Gold slips to fresh 3-week lows below $1260

Casting minds back quickly to last week, we have the preliminary GDP Q1 for the US economy that showed the economy might have only grown by 0.7% annualised (vs 1.0% expected, but well above the Atlanta Fed’s model prediction of 0.2%). 

"Almost all the slowdown was attributed to the consumer, adding just 0.2ppts to growth in the quarter after two-quarters in a row above trend (adding more than 2ppts in each quarter)," explained analysts at Westpac, adding, "the most notable area of consumer weakness was in autos, where there was a sharp slowing, but given healthy labour market trends that can be looked through."

Starting today, the US data followed suit of disappointing results. Personal income grew by less than expected for March, while spending remained flat. We also had the Personal Consumption Expenditures price index that was soft as expected, with the monthly core reading down by 0.1%. USD/JPY had been soft on the back of the data although supported in the upper end of the 111 handle.  

"Yield spreads remain a headwind for JPY, and near-term risk lies with the release of the BoJ minutes from mid-March and Gov. Kuroda’s public appearance," explained analysts at Scotiabank, adding, "the broader tone remains crucial for JPY, and options markets are pricing in a relatively low premium for protection against JPY strength."

USD/JPY levels

Valeria Bednarik, chief analysts at FXStreet noted that the pair has a major resistance around 112.00, the 38.2% retracement of the November/December rally, with a break above it probably triggering some stops and fueling further short-term advances up to 112.90 during the upcoming sessions.