The dollar remains on a path to recovery, though yesterday's retail sales numbers prompted a minor dropdown in the short term. This signifies the emergence of a correction within an established trend. To read more about the trading prospects under these conditions, have a look at our previous EURUSD analysis.
Retail sales in the U.S. grew markedly in January, beating the market forecasts. This was revealed by the Census Bureau yesterday. The solid rebound in consumption prompted a minor dropdown on the dollar over the last several hours, though the end of the correction may be coming soon.
As can be seen on the 4H chart above, the USDJPY remains in a strong uptrend, underscored by the ascending channel. The uptrend itself appears to be structured as a 1-5 impulse wave pattern, as postulated by the Elliott Wave theory.
The publication of the retail sales data prompted the most recent dropdown to the lower limit of the channel, coinciding with the 200-day MA (in orange). The latter underpins the major support level at 115.00.
Given that the correction appears to be serving the role of the second retracement leg (3-4) of the broader Elliott pattern, the price action is likely to rebound soon. This would allow for the establishment of the third and final impulse leg (4-5) further up north. Alternatively, the price action could rebound from the major support level at 114.770, highlighted by the 300-day MA (in purple).
Traders should also watch the support-turned-resistance at 115.256. This 61.8 per cent Fibonacci retracement level is currently converging with the 100-day MA (in blue), making it an even stronger threshold.
Better-than-expected consumption growth was recorded in January
Consumption grew by 3.8 per cent in January, recovering from the 2.5 per cent crunch that was recorded a month prior and beating the preliminary forecasts of 2.1 per cent. This is the best performance on record since March last year.