Five Days of Gains for USD/JPY

US trading was generally lackluster ahead of the FOMC minutes as traders analysed, and perhaps over-analysed, the contents of the report. The dollar initially slumped on headlines saying many Fed officials saw a June hike as unlikely but that was quickly discounted because the market had priced virtually zero chance of a June hike.

As a result, the US dollar fell about 30 pips across the board only to recover. One overlooked part of the report was an upgrade in medium-term Fed growth forecasts. Along with persistent talk that Q1 softness was seasonal, that could make a September hike more likely than markets anticipate.

That said, the Minutes are dated and what Fischer and Yellen say in the next two days, not to mention economic data, is far more important than Fed commentary that's three weeks old.

Yet even more important is price action and the US dollar has quietly strung together a great series of gains. USD/JPY catches our attention because it continued to rally on Wednesday even after a report in Nikkei suggesting the BOJ could raise its economic outlook today after strong GDP revisions yesterday. It would be the first hike in the outlook since 2013 and severely degrades the possibility of BOJ easing this year.

If that report out to be true, it could cause knee jerk selling in the pair but it may be an opportunity to buy in anticipation of a breakout. USD/JPY has been stubbornly solid during the recent period of USD weakness and if yields continue to rise, it will benefit.

Another event to watch in the hours ahead is the HSBC China manufacturing PMI at 01:45 GMT. The consensus is for a slight improvement to 49.3 from 48.9. We warn that trading AUD on Chinese data has been tricky in the past few months. Bad data is quickly discounted and AUD often rallies on the prospect for more Chinese rate cuts.