Despite Friday’s rally, U.S. data has been terrible. GDP growth slowed to 0.7% in the first quarter the worst level in 3 years. Personal consumption was the weakest since 2009. Investors were excited about the rise in prices but higher inflation won’t be enough for the Federal Reserve to raise interest rates in June. There’s currently a major misalignment between the performance of the U.S. economy and the market’s expectations for Fed tightening. Fed fund futures are pricing in a 69% chance of a rate hike in June. This jump occurred after the election in France and in spite of consistently softer U.S. data. Over the past month, job growth slowed to 98K, inflation declined, manufacturing and service sector activity slowed and spending turned negative. The only “good” news was in the unemployment rate, which notched lower and in the housing market which continued to benefit from low interest rates. There’s not enough here for the Fed to be convinced that rates should increase in June instead of September and for this reason, we think the dollar will trade lower into FOMC. 

Technically USD/JPY is testing the 50-day SMA likely to reject it with a potential retest of near term support at 111.00.