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

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his wife, son,… read more.
on May 17, 2021
  • 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.

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. 

Japanese yen
Japanese yen chart

Japan GDP preview

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. 

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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

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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