Dollar pushes yen above 105

The Japanese yen has started the new trading week with losses. Currently, USD/JPY is trading at 105.37, up 0.43% on the day. In the US, markets are closed for President’s day, so we’re unlikely to see much movement from USD/JPY in the North American session.

Dollar pushes higher

In the past few weeks, we are seeing stronger movement from the Japanese yen. Early last week, the yen gained 0.63%, its strongest one-day gain since November 20. The dollar has since recovered all these losses and is up on Monday for a fourth straight session.

In Japan, Preliminary GDP for Q4 of 2020 climbed 3.0%, beating the estimate of 2.4%. Despite this solid release, the risk-on mood continues to favor USD/JPY buyers. Investors have piled funds into equities and US treasury bills and chose to skip over the safe-haven Japanese yen. Today’s news was certainly positive, but the outlook for Japan’s economy remains grim. The Preliminary GDP Price Index slowed to 0.2% in Q1, down from 1.1% in the previous quarter.

Japan’s manufacturing indicators continue to point to contraction in the sector. Industrial Production posted a second straight decline in December, with a reading of -1.0%. We’ll get a further look at manufacturing data on Tuesday, with the release of Tertiary Industry Activity (4:30 GMT) and Core Machinery Orders (23:50 GMT). As well, Japan releases Manufacturing PMI on Friday. The index has been in contraction territory for over two years but is expected to reach the 50.0 level, which separates contraction from expansion.

Taking a look at US fundamentals, this week is relatively light on the data calendar. Investors are counting on a bounce back from Retail Sales which declined in December, which will be released on Wednesday (13:30 GMT). Headline Retail Sales is expected to climb to 0.9% and Core Retail Sales is projected to rise 1.1%.

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USD/JPY Technical Analysis

• USD/JPY is moving higher and is testing resistance at 105.59. Above, we find resistance at 106.26
• There is support at 104.33, followed by support at 103.74
• The 50-day moving average (MA) is located at the round number of 104.00

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