USD/JPY Jumps on US PMI Data Beat as US Treasury Yields Resume Rally

USD/JPY Outlook:

• USD/JPY US PMI data soar after upside
• strong economic activity Pushing Treasury Yields Across the Curve, Reviving Expectations for ‘Higher Longer’ Rates
• S&P Global Composite PMI in March hit 53.5 versus 52.3, a possible sign that business activity is starting to pick up

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USD/JPY was down early Friday morning, but was helped by better-than-expected US economic data, making a 180-degree turn and rising sharply shortly after US markets opened. The chart below shows the pair jumping from 133.55 to 134.35 in just a few minutes.

USD/JPY 5 minute chart

sauce: TradingView

For context, the S&P Global Flash US Composite PMI hit 53.5 in April from 52.3, services business activity surged to 53.7 from 52.6, and manufacturing production rose to 50.4 from 49.2 a month ago. Both his PMI sub-indexes surprised upwards compared to consensus estimates.

US economic calendar

sauce: Daily FX

The resilient macro outcome pushed US Treasury rates higher, especially those at the front end of the curve, as traders reset the FOMC’s monetary policy path a little higher than the day before. The respective implied yields are trending upward.

2023 Fed Funds Futures

sauce: TradingView

Despite numerous headwinds, the strong performance of the US economy suggests that the country may be able to avoid a hard landing and that inflation will stay high for longer. This could prevent the Fed from cutting rates too soon. The outlook is fluid and subject to unexpected shifts, but the stars seem to be aligned for a stronger dollar, at least in the short term.

In the current environment, USD/JPY has fewer obstacles to extend the recent rebound, with initial resistance seen at 134.75, followed by 136.60, a 38.2% Fib retrace of the Oct-22/Jan-23 drop followed by a ment. In case of a rebound, the first support to consider appears at 133.75/133.65 and then at 131.50.

USD/JPY Technical Chart

USD/JPY chart created with TradingView