USD/JPY – Solid Japanese Retail Sales Pushes Yen Higher

The Japanese yen is steady as we start the new trading week. In Monday’s European session, USD/JPY is trading in the high-97 range. The yen got a boost from Japanese Retail Sales on Sunday, which was a bit shy of the estimate but nonetheless posted a sharp gain. In the US, last week ended on a positive note as UoM Consumer Sentiment climbed to multi-year levels. It’s a quiet schedule on Monday, with just one release on the calendar -US Pending Home Sales.

The yen has looked very sharp over the past few days. USD/JPY has now dropped over 250 points since Thursday, as the yen has pulled away from the 100 level, which saw a lot of activity last week. Japanese releases continue to point upwards, as Retail Sales jumped from 0.8% to 1.6%. This was the sharpest rise since September 2012. Although the indicator was short of the estimate of 1.7%, the markets are in a forgiving mood after this impressive gain.

Abenomics appears to be working, as recent Japanese releases point to an improving economy. One of the cornerstones of the Japanese government’s economic policy has been a battle to eliminate deflation, which has hobbled the economy for some 15 years. It has taken quite a bit of time, but inflation indicators are finally pointing upwards. Last week, Tokyo Core CPI improved rose from 0.2% to 0.3%, matching the forecast. Not to be outdone, National Core CPI jumped from 0.0% to 0.4%, also matching the estimate. Another inflation release, Corporate Services Price Index, posted a gain of 0.4%. Although this fell short of the estimate, it did mark the indicator’s best reading in 2013.

US consumer confidence is very high, at least according to UoM Consumer Sentiment, which was released on Friday. The indicator rose from 84.1 to 85.1 points, its highest level since July 2007. US consumers are clearly feeling good about the economy, but will this translate into stronger spending and more jobs? The markets will have to wait for data from these and other sectors to see if a happier consumer is indeed leading to greater economic activity.

Another vital sector for economic growth is the US housing industry. Last week the US posted two housing releases, which pointed in opposite directions.  Last week started off an a disappointing note as existing home sales fell to 5.08 million, way off the estimate of 5.27 million. However, New Home Sales showed strength, jumping from 476 thousand to 496 thousand, easily beating the estimate of 482 thousand. This was its best showing in five years. The markets will get another look at housing data on Monday, with the release of Pending Home Sales. The key indicator looked excellent last month, posting a gain of 6.7%. However, the markets are braced for a much weaker reading in July, with an estimate of a 1.1% decline.

USD/JPY for Monday, July 29, 2013

USD/JPY 97.86 H: 98.20 L: 97.63

USD/JPY Technical

The yen managed to break away from the 100 line late last week, and continues to post gains. In the Asian session, there was some activity around the 98 line. In the European session, USD/JPY is testing support at 97.83. The next support line is at 97.18. Given the strong gains we are seeing from the yen, this line cannot  be considered safe.

On the upside, 98.43 is providing resistance. This is followed by a stronger line at 99.45, protecting the 100 level.

• Current range: 97.83 to 98.43

Further levels in both directions:

• Below: 97.83, 97.18, 0.9620 and 95.60
• Above: 98.43, 99.45, 100.00, 100.85, 101.66 and 102.52

OANDA’s Open Positions Ratio

USD/JPY ratio is showing little change in the Monday session. This is consistent with what we are seeing from the pair, which has not shown much movement. Long positions continue to enjoy a sizeable majority of open positions, indicating that trader sentiment is biased in favor of a move upwards by USD/JPY.

The yen has posted some impressive gains against the US, bolstered by positive inflation and retail sales data out of Japan. Will the rally continue? With the US releasing a key housing event later today, we could see some volatility from USD/JPY.

USD/JPY Fundamentals

• 14:00 US Pending Home Sales. Estimate -1.1%

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.