There was very little consistency in the performance of the U.S. dollar this past week with the greenback trading lower versus the Japanese Yen, steady against all of the other major currencies except for sterling. On a percentage basis, the changes were small but given how far the dollar had rallied at the start of the week, the pullback was significant. USD/JPY ran as high as 114.95, just a few pips shy of 115 before ending the week below 113. The most phenomenal part of the move was that it was counter to data and Fed speak. Nearly all of this past week’s most important U.S. economic reports beat expectations including consumer prices, retail sales, the Empire and Philadelphia manufacturing surveys, building permits and jobless claims. The only miss was in industrial production and housing starts. Most importantly, Fed Chair Janet Yellen made her intention to raise interest rates very clear but corrective forces emerged as the dollar took its cue from U.S. yields and this misalignment can’t last for long. Unfortunately aside from Fed speak there’s not much on next week’s shortened U.S. calendar to help the dollar. U.S. markets are closed on Monday for Presidents Day. So while we believe that it is only a matter of time before the dollar resumes its rise, the bulls could be hanging back until President Trump announces his “phenomenal tax plan.”

Technically it is premature to call this a bottom in USD/JPY as it has fallen below the 20-day SMA which could be indicative of a trend change. In fact the series of lower highs and lower lows signals the potential for further losses with 111.75 a possible target for the pair. USD/JPY needs to break back above Friday’s high of 113.50 to reverse the negative outlook for the pair.