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USD/JPY Nosedives Below 105.00 After Disappointing US GDP

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Technical analysis of Forex market

Key Highlights

  • USD/JPY settled below the main 106.00 support and dived below 105.00.
  • Key resistances are forming near 105.00, 105.40 and 106.00 on the 4-hours chart.
  • The US GDP contracted 32.9% in Q2 2020 (Preliminary), way more than the last -5%.
  • The US Initial Jobless Claims in the week ending July 25, 2020 increased from 1,422K to 1,434K.

USD/JPY Technical Analysis

In the past few days, there was a strong decline in the US Dollar below the 106.65 support against the Japanese Yen. USD/JPY even broke the 105.00 support to enter a bearish zone.

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Looking at the 4-hours chart, the pair traded below the 105.00 level, and settled well below the 100 simple moving average (red, 4-hours) and the 200 simple moving average (green, 4-hours).

A new monthly low is formed near 104.19 and the pair is currently struggling to recover. An initial resistance is near the 104.90 level or the 23.6% Fib retracement level of the recent crucial decline from the 107.28 high to 104.19 low.

The first major resistance on the upside could be 105.00 (the recent breakdown zone). However, the main resistance seems to be forming near the 106.65 level (the last week’s breakdown zone).

If there is no upside correction, the pair could continue to move down below 104.20 and 104.00. The next major support is near the 103.60, below which the pair might test the 103.20 level.

Fundamentally, the US Gross Domestic Product for Q2 2020 (Prelim) was released by the US Bureau of Economic Analysis. The market was looking the GDP to decline by 34.1%.

The actual result mostly in line with the forecast, as the US GDP decreased at an annual rate of 32.9 percent in the second quarter of 2020.

The report added:

The decline in second quarter GDP reflected the response to COVID-19, as “stay-at-home” orders issued in March and April were partially lifted in some areas of the country in May and June, and government pandemic assistance payments were distributed to households and businesses.

Overall, USD/JPY is likely to face a lot of hurdles if it starts a decent recovery above 104.50. Looking at EUR/USD and GBP/USD, both pairs are showing a lot of positive signs and trading in a bullish zone.

Upcoming Economic Releases

  • Euro Zone CPI July 2020 (YoY, Preliminary) – Forecast +0.2%, versus +0.3% previous.
  • Euro Zone GDP Q2 2020 (Preliminary) (QoQ) – Forecast -12.0%, versus -3.6% previous.
  • US Personal Income June 2020 (MoM) – Forecast -0.5%, versus -4.2% previous.
  • Canadian GDP May 2020 (MoM) – Forecast +3.5%, versus -11.6% previous