After rising for 6 days straight, USD/JPY finally consolidated today above 109. The decline in Treasury yields prevented USD/JPY from rising but U.S. data was better than expected with jobless claims falling to its lowest level in 49 years. Durable goods orders also rose 2.6%, against expectations for 1.6% increase while the trade deficit shrank to -$68B from -$75.9B. There are 2 event risks in the next 24 hours that will affect how USD/JPY trades. Tonight, the Bank of Japan has a monetary policy announcement.
The BoJ firmly believes in the need for easy monetary policy so no changes are expected but they will be releasing their latest economic projections including their first forecasts for 2020. Tomorrow, first quarter U.S. GDP numbers are scheduled for release and while investors are positioning for a strong report, the drop in non-defense capital goods orders, the stagnation in durable goods ex transportation, weakness in retail sales at the start of the year points to a softer release. Therefore if GDP falls short of expectations, we could see end of week profit taking in the greenback.
Technically, USD/JPY has broken above the 100-day SMA and 50% Fibonacci retracement of June to December 2016 rally. However as shown in the chart, the rally stopped right at the 100-week SMA near 109.50. This is a significant resistance level that USD/JPY needs to break in order to make a run for 110. If it fails here, support is at 108.75 and a break below that level could see the pair slip all the day down to 108.