Japan’s Q2 GDP contraction was revised down to -7.9% q/q, from -7.8% q/q. On an annual basis, GDP contracted -28.1% vs the preliminary reading of -27.8%. The final GDP deflator is at 1.3% y/y. (The GDP deflator is the ratio of real GDP to nominal GDP, multiplied by 100). The GDP deflator shows the magnitude of the change in prices for all new goods, locally produced goods, finished goods, and services. In July, cash labor income fell by -1.3% y/y, compared to the forecast of -1.6% yoy. Household spending decreased by -7.6% y/y, compared to the forecast -3.7% y/y. The current balance surplus narrowed to ¥ 0.96 trillion. Bank lending increased by 6.7% y/y in August, compared to the forecast of 6.3% y/y.
The Japanese economy was in bad shape in April-June due to a halt in activities in order to contain the coronavirus, however, lately it has shown signs of recovery.
The movement of the EURJPY currency pair was seen to be weakening yesterday and is trying to test the support level 124.42. The divergence pattern looks very real, after twice trying to break the strong resistance 126.78 which was the high price in April 2019. Selling pressure is seen from the upper shadow which has led the pair to rebound from this important level.
The rhythm of EURJPY’s movement follows the rhythm of EURUSD which is also weakening against USD, but EURUSD is still stuck at the support level of 1.1750. There are 2 levels of support that will hold EURJPY’s decline, namely at 124.42 and 122.86, which are resistance areas that they have now turned into Support. The price movement is below the 26-EMA, but still above the 50 day EMA, along with the 38.2% Fib retracement level. If the support level 124.42 is strong enough to resist the decline, it will result in further consolidation before determining direction. Whether this is a catalyst for the EURJPY movement is likely to be determined by the ECB interest rate decision and comments on Thursday (10/09).
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Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
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