USD/JPY soars to highest level since November 2022, following US data release

• USD/JPY reaches yearly highs and positions near the 140.00 level.
• US Q1 GDP grew by 1.3%, surpassing expectations, while Jobless Claims exceeded estimates. Core PCE inflation rose 5% in Q1.
• Investors are eagerly anticipating today's release of the May Tokyo Consumer Price Index.

The Ninja continue edging higher on Thursday, maintaining yearly highs and approaching the key level of 140.00. This surge comes amidst positive economic developments, with the US Q1 GDP growth surpassing expectations and Jobless Claims exceeding estimates. Additionally, core PCE inflation rose by 5% in the first quarter. In that sense, the positive economic data from the United States, coupled with the rise in US bond yields due to the increased likelihood of a Fed adjustment, further favored the US Dollar.

On the other hand, investors will closely monitor the May Tokyo Consumer Price Index, which is expected to further impact the USD/JPY pair.

US economic data came in above expectations

The US Bureau of Economic Analysis recently announced that the United States experienced a 1.3% quarter-on-quarter expansion in Gross Domestic Product (GDP) during Q1 of 2023, surpassing the initial estimate of 1.1%. Additionally, Jobless Claims for the week ending on May 19 came in at 229k, lower than the expected consensus of 245k. Furthermore, Core PCE inflation rose to 5% in Q1, exceeding the projected rate of 4.9%.

In response to concerns expressed by the Federal Open Market Committee (FOMC) regarding economic activity, the CME FedWatch Tool now indicates a higher probability of a 25 bps interest rate increase. This development has fueled an increase in US bond yields, with the 10-year yield reaching 3.79%, reflecting a 3.22% rise in a single day. Additionally, the 2-year yield currently stands at 4.46%, representing a gain of 2.61%, while the 5-year yield sits at 3.87%, showing a 3.22% increase. These movements in bond yields provide further support to the US Dollar.

Levels to watch

Based on the daily chart analysis, the USD/JPY exhibits a bullish outlook in the short term. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators indicate the dominance of buyers while the pair remains above its key moving averages. 

If the USD/JPY continues to gather momentum, it is likely to encounter resistance at the 140.00 level, followed by the 140.50 zone and the psychological level of 141.00. Conversely, on the downside, important support levels to monitor include the 139.50 zone, the 139.00 level, and the weekly low at 138.50.