Is the USD/JPY a buy or sell ahead of Japan GDP data

By:
on May 17, 2021
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  • The USD/JPY has formed a head and shoulders pattern ahead of Japan GDP data.
  • The pair has also formed a rising wedge pattern.
  • Japan’s statistics agency will publish the latest GDP data on Tuesday.

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The USD/JPY price retreated ahead of the upcoming Japan GDP data set for Tuesday this week. It is trading at 109.13, which is 0.60% below last week’s high of 109.78. 

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Japanese yen
Japanese yen chart

Japan GDP preview

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The USD/JPY is rising after some positive economic data from the country. According to the statistics agency, the country’s producer price index (PPI) rose by 0.7% in April, better than the median estimate of 0.5%. This increase pushed the year-on-year gain up by 3.6%, better than the median estimate of 3.1%. These numbers show that the country’s factory inflation is moving in the right direction. 

Further data showed that Japan’s machine tool orders increased by 120.8% in April as the global economy continued to recover. The jump was higher than the previous 65.1%. 

The data came a day before the country is expected to release its first-quarter GDP data. Economists polled by Reuters expect the data to show that the economy contracted by 1.2% in the first quarter after rising by 2.8% in Q4. They expect the economy to have contracted by 4.6% on a year-on-year basis. 

This performance will be because of a 2.0% decline of private consumption and a 0.2% decline of external demand. It will be partially offset by a 1.15 increase in capital expenditure. If the numbers are stronger than expected, they could push the USD/JPY further lower.

The data will come a week after the Japan Center for Economic Research predicted that the economy expanded by 1.8% in March to reach $5 trillion. The center estimated that exports rose by 3% while investments rose by 1.6%. In a statement to Reuters, an analyst at Daiwa Institute of Research said:

“Instead of staging a V-shaped recovery, Japan’s economy may contract again in April-June. Looking ahead, the key would be whether Japan can end state of emergency curbs in May.”

USD/JPY technical outlook

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USD/JPY
USD/JPY technical chart

The USD/JPY pair rose to a high of 110.95 on March 31st. Since then, the pair retreated to107.47, which was slightly below the 38.2% Fibonacci retracement level. It then started rising and formed what looks like a rising wedge pattern. The price is also at the same level as the 25-day and 50-day exponential moving averages (EMA). It also seems to have formed a head and shoulders pattern, which is a bearish signal. Therefore, there is a possibility that the pair will resume the downward trend after the Japan GDP data.

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