USD/JPY – Strong US GDP pushes yen to 109

The Japanese yen is in negative territory on Thursday. In the North American session, USD/JPY is trading at 109.03, up 0.41% on the day.

US GDP sparkles

The US economy posted strong growth in the first quarter of the year, with a gain of 6.4% QoQ. This was just shy of the 6.5% forecast and up from 4.3% at the end of 2020. The solid reading was another sign that the economy is recovering at a rapid clip. The US dollar responded with strong gains, with USD/JPY punching above the 109 level. The US dollar has been struggling lately, but the greenback is enjoying a strong week against the yen, with gains of 1.0%.

The FOMC meeting reiterated that the Federal Reserve remains committed to a dovish policy. However, a close look at the language of the rate statement and Fed Chair Powell’s follow-up remarks revealed a few subtle changes from previous meetings. The Fed acknowledged progress in the battle to control Covid-19 and the strengthening of the US labour market, stating:

Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened”.

When Powell was asked specifically about tapering, he replied that it was too early to have a conversation about that. This sent US yields lower, dragging down the US dollar. However, the excellent US GDP report has resulted in a rebound for the US dollar, and the dollar could continue to improve if upcoming US data is positive.

Turning to Japan, there is a dump of economic data later on Thursday and early Friday. Of particular interest is Tokyo Core CPI (23:30 GMT). The index has reeled off eight straight declines, but is expected to improve to 0.0% in April.

USD/JPY Technical

• USD/JPY is testing resistance at 108.65. Above, there is resistance at 109.43
• On the downside, there is support at 107.29 and 106.71

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