After losing ground to most of its counterparts yesterday including the yen, the US dollar is faring much better in today’s Asian session. USDJPY is slightly up from its opening price at 107.64 following disappointing data from Japan.
The country’s trade balance report for April posted a staggering trade deficit of 1 trillion JPY. Analysts had only expected a deficit of 650 billion to follow the 380 billion deficit we saw in March. In addition to this, the manufacturing PMI report for Japan came in at 38.4 for May, much farther from the 50.0 baseline which indicates industry expansion, compared to April’s 41.9 reading.
Remember the inverse head and shoulders I pointed out yesterday on USDJPY? The bearish reversal chart pattern is still valid despite the currency pair retreating from the neckline resistance. USDJPY just recently tested support at the rising trendline from connecting the lows of May 6, May 8, May 14, and May 15. On top of that, the currency pair also found support at the 200 SMA and the 50% Fib level (when you draw the Fibonacci retracement tool from the low of May 15 to the high of May 19).
With the recent price action on USDJPY, it could suggest that it may soon retest the neckline resistance at 108.09. If there are enough buyers in the market, a strong close above this price may even push the currency pair to its April 6 highs at 109.36.
On the other hand, a strong bearish close below the low of May 20 at 107.32 could lead to a move lower to 106.92 where USDJPY could test the 100 SMA. If support at this price does not hold, the next floor could be at 105.98 where the pair bottomed on May 6.