The yen's temporary strengthening is in stark contrast to the broader bearish sentiment of the currency. This is the type of divergence between short term and long term pressures that tends to create interesting trading opportunities. Check out our latest GBPJPY analysis for additional information.
Japan's GDP growth in the second quarter surpassed the market forecasts, as was reported by the Cabinet Office in the early hours of the Asian session. The stronger-than-expected economic expansion was driven by a solid pick-up in economic activity and global demand.
Similar observations regarding activity in the East Asia/ South Pacific region were drawn by the RBA yesterday. Japan's solid quarterly performance thus bolstered the yen in the short term and seemingly primed the USDJPY for a new downswing.
As shown on the 4H chart above, the price action is currently probing the upper boundary of the range and the 61.8 per cent Fibonacci retracement level at 110.317. The crossover of the two represents a significant resistance level and a prominent turning point.
Nevertheless, if the price manages to consolidate above the two, it would then likely target the previous swing peak at 110.800. The currently evolving Shooting Star candle, however, seems to corroborate the opposite expectations for an upcoming reversal.
This is further bolstered by the fact that the ADX indicator has been threading below the 25-point benchmark since the 19th of August, which confirms the ostensibly range-trading environment. Under these conditions, sharp turns in the direction of the price action from major levels of support and resistance are made even likelier.
Notice also that the Stochastic RSI indicator has been threading in its overbought extreme for a while, which could catalyse an upsurge in selling pressure in the near future.
Japan's economy grew by 0.5 per cent in the second quarter, beating preliminary estimations of a 0.3 per cent expansion. The initial forecasts were projecting no likely changes between the preliminary and final readings.
As mentioned above, the upward revision is owing mostly to a strong uptick in demand over the same period.