Mid-Day Report: Yen Tumbles as US Data Beats Forecasts, FOMC Awaited

While dollar finds some strength after better than expected growth data in early US session, the Japanese is the main market mover as it's sold off on improved risk appetite in the markets. Q1 GDP growth was unchanged at 0.6% annualized, which is above forecast of 0.4%. Personal consumption also beat expectation by growing 1.0% comparing to consensus of 0.6%. ADP employment unexpectedly showed 10k job growth comparing to expectation of -60k contraction. Yen is sharply lower across the board on anticipation of higher open in the US stock markets. Indeed, carry trade activities pushed the Aussie, Kiwi higher too. But after all, the effect will likely fade as the session goes, before another round of volatility after FOMC rate announcement and statement.

Euro, on the other hand, remains pressured and edged lower against dollar in European session after weaker than expected Eurozone data. In particular, Apr HICP flash came in at 3.3%, moderated from prior 3.6% and missed expectation of 3.4%. Sentiments in the Eurozone deteriorates further with business climate diving from 0.79 to 0.44 in Apr while economic sentiment dropped from 99.6 to 97.1. Though, unemployment rate was unchanged at 7.1% in March. Swiss KOF indicate also dropped sharply from 1.54 to 1.20 in Apr.

After earlier selloff, Sterling stabilized as being supported in crosses. Apr Gfk consumer consumer confidence dropped sharply from -19 to -24, much worse than expectation of -20. Nationwide house price showed the first annual drop since 1996 by -1.0%.

Canadian dollar is a bit tricky. Feb GDP was disappointing by contracting -0.2% mom. But the Loonie is lifted against dollar on much stronger than expected PPI which climbed 1.7% mom in Mar comparing to consensus of 0.9% and carry trades.

Looking ahead, attention is now turning to FOMC rate decision and announcement. Dollar is being supported by growing speculations that Fed is near to pausing it's policy easing cycle. Indeed, fed fund futures are pricing in around 20% odds that Fed will pause today and 70% odds that Fed will be on hold in June. Though, Fed is still widely expected to cut rates by 25bps to 2.00% today, with futures pricing in 80% chance. Focus is mainly on any change in the accompanying statement that signals that Fed is really near to a pause. The greenback will likely be boosted sharply if Fed does sound more confident that the monetary policy after today's cut will help save the economy from a deep and prolonged recession.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 103.89; (P) 104.36; (R1) 104.63; More.

USD/JPY's strong rebound in early US session and the brief break of 104.82 argues that recent rebound from 95.77 has resumed. At this point, intraday bias remains mildly on the upside as long as 103.18 support holds. Further rise could now be seen to 104.96/108.59 resistance zone. However, note that upside momentum is still seen in 4 hours MACD and RSI. Below 103.18 will argue that rise from 95.77 has completed and will put focus back to lower channel support (now at 102.02). Break will add more credence to this case and bring further fall to 100.02 support.

In the bigger picture, break of 103.59 cluster resistance, as well as 55 days EMA (now at 103.31) argues that a medium term bottom is in place after down trend from 124.13 has just met 76.4% retracement of 79.75 to 147.68 at 95.78. Focus is now on 108.59 resistance and break of which will break a series of lower highs, lower lows pattern that started at 124.13 and will confirm that this down trend has completed already. In such case, stronger medium term rebound should then be seen to retest 114.77 resistance first.

However, failure below 108.59, followed by break of 100.02 support will firstly indicate rebound from 95.77 has completed. Secondly, it will keep the lower higher, lower lows pattern intact and suggest that down trend from 124.13 is still in force.

Forex News Digest

• U.S. Private Employment Unexpectedly Increases in April, ADP Says (Update)
• Q4 Advance GDP Steady at 0.6% in Q1, Slightly Above Forecasts
• First-Quarter U.S. Employment Cost Index Grows 0.7% in Q1
• Canadian GDP Tumbled Faster Than Expected in February
• Higher Energy Costs Push Canadian Raw Materials Prices Up 6.6% in March
• European Market Update: European Bonds Rise, Equities Lower Ahead of FOMC
• Overnight News Recap: BOJ Holds, EU HICP Falls, UK Consumer Confidence Weakens
• Bank of Japan Holds Rates Unchanged as Expected, Promises Flexible Policy
• U.S. Economy Expanded at 0.6% Pace in First Quarter, Faster Than Estimated
• Dollar Heads for Monthly Gain Versus Euro on View Federal Reserve to Pause
• Pound Falls After Data Shows First Annual Drop in House Prices Since 1996
• New Zealand, Australian Dollars Decline as Economic Expansion May Slow

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