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Forex: USD/JPY erases losses back to 98.08

FXstreet.com (Barcelona) - Following the 15:00 GMT options cut and US pending home sales data, the USD/JPY jumped from 97.85 back above 98.00 ground, successfully erasing its daily losses at 98.08 (Friday’s closing price). Today’s load of US data was published, with Dallas Fed manufacturing business being the last indicator.

The Dallas Fed Manufacturing Business Index fell from 7.4 to -15.6 in April, which came in as very disappointing as investors were expecting a positive figure, at 5.0.

The National Association of Realtors indicated that US pending home sales beat market consensus at 1.5% (MoM) in March, instead of the 1.0% expected. Annualized data came in at 7.0%, above 6.1% consensus but not as high as last year’s figure of 8.4%.

US Core income disappointed at 0.2% in March, instead of 0.4%, and spending rose 0.2%, instead of 0.0% expected. The price of personal consumption expenditures fell -0.1% (MoM) to an annualized drop from 1.3% to 1.0%, as expected. Core prices came in at 0.0% (MoM) to an annualized drop from 1.3% to 1.1%, below consensus of 0.1% and 1.2%, respectively.

It’s being reported that Japan may diversify some of its FX reserves into the bond markets of South East Asia and the announcement could come as early as Friday May 3rd. “Admittedly, the scope for flows into EM currencies is significant. Japan has a total FX reserve pool of US$1.24 trn and, as Chart 1 shows, only a tiny fraction of this is currently invested in currencies outside the IMF's SDR basket (USD, EUR, GBP, JPY, CHF). There is also a strong tendency to hold reserves in the form of bonds rather than cash deposits, which appears to bode well for EM bond markets in particular”, wrote UBS analyst Gareth Berry, adding that such process is not yen-negative, it’s a very modest dollar-negative and it will proceed at an agonizingly slow pace.

“Mostly flat, further bearish momentum may be seen on a break below 97.20 support, while the upside remains capped now by 98.20”, wrote Windsor Brokers analyst Slobodan Drvenica, pointing to resistance levels at 98.20, 98.60 and 99.10, while supports are at 97.50, 97.20 and 96.80.

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