USDJPY Enters a Bearish Consolidation Zone

Summary:

The USDJPY pair entered a bearish consolidation zone after the weak GDP data from Japan due the coronavirus pandemic. Bears are eying 106.00 level.

The USDJPY wavered today as investors reacted to the mixed economic data from Japan. The pair is trading at 106.60, which is slightly above its lowest point of the day at 106.45.

According to the Japan’s Cabinet Office, the country’s economy contracted by 7.8% in the second quarter. That was weaker than the 7.6% that analysts polled by Reuters were expecting. It was also the third consecutive quarter that Japan has been in the red. On an annualised basis, the economy contracted by 27.8% after dropping by 2.2% in the previous quarter.

This decline was mostly because of a sharp contraction in consumer spending, which accounts to more than 50% of the GDP. This spending declined by 8.2% in the second quarter while exports eased by 3.0%. As the economy weakened, companies reduced their capital spending, which declined by 1.5%.

Japan GDP record contraction

Another data released at 04:30 GMT showed that capacity utilization rose by 6.2% in June after falling by 11.6% in the previous month. Also, industrial production rose by 1.9%, down from the previous increase of 2.7%.

The contraction of the Japanese economy was worse than that of its Asian peers. For example, China’s economy expanded by 3.2% in the second quarter while South Korean economy contracted by 3.3%. However, the weakness was better than the 32.9% contraction of the United States and the 20.4% weakness of the United Kingdom.

USDJPY technical outlook

The four-hour chart shows that the USDJPY pair formed a double top pattern at around 107.00 last week. The price is along the 61.8% Fibonacci retracement level. (This retracement is drawn by joining the highest point on July 1 and the lowest point on July 31). Also, the price is slightly above the 50-day and 100-day exponential moving averages.

It is also forming a bearish consolidation pattern that is shown in pink. This means that the price is likely to continue falling as bears target the next support at 106.300. On the flip side, a move above the double top pattern of 107.00 will invalidate this prediction.