USD/JPY continues rally ahead of Japanese GDP

• USD/JPY continues to rally
• Japan releases GDP on Wednesday
• Fed members warn that more rate hikes on the table

USD/JPY continues to rally and is up for a fourth straight day and has gained an impressive 230 points during that time. USD/JPY is up 0.37% on the day, trading at 136.62.

Japan releases GDP for second-quarter growth early on Wednesday. The consensus estimate stands at 0.2% q/q, after a downwardly revised 0.0% reading in Q1. The economy continues to struggle and the nasty combination of weak domestic demand and a struggling global economy likely means a bumpy road ahead for the economy.

Fed remains hawkish about rates

The Federal Reserve continues to send out a hawkish message to the markets. The markets are expecting a pause in rate hikes at the June meeting, although the odds of a pause are currently 75%, compared to 95% last week, according to the CME’s FedWatch. Inflation may have fallen but the battle is far from over with inflation well above the Fed’s target of 2%.

Richmond Fed President Tom Barkin said on Monday that he saw “no barrier” to higher rates if high inflation persisted. Barkin said that demand was easing but not fast enough for inflation to fall to the 2% target. As for the job market, Barkin said it had moved from “red hot to hot” and there were some signs of the labour market easing. Atlanta Fed President Raphael Bostic poured cold water on rate cuts this year and warned that rates could go up, given the persistence of inflation pressures. This was a direct salvo at the markets, which have priced in the possibility of the Fed trimming rates before the end of the year.

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USD/JPY Technical

• USD/JPY is testing resistance at 136.62. Above, the next resistance line is 137.08
• There is support at 135.08 and 134.42

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