USD/JPY – Yen Back Above 123, US Posts Weak Numbers

The US dollar has strengthened on Monday, as USD/JPY trades at 123.20 in the North American session. In economic news, Chicago PMI and Pending Home Sales were well short of the forecast. The markets will be looking for better news from ISM Manufacturing PMI on Tuesday. In Japan, Retail Sales posted a gain of 1.8%, beating expectations. We’ll get a look at Capital Spending later on Monday.

It was a dismal start to the new trading week for US releases. Chicago PMI slid into contraction mode, dropping sharply from 56.2 points to 48.7 points. This was way off the estimate of 54.3 points. There was little relief from Pending Home Sales, which posted a weak gain of 0.2%, compared to the forecast of 1.6%. However, the housing indicator managed to break a string of two consecutive declines. Market attention has shifted to Tuesday’s key release, the ISM Manufacturing PMI. Recent US manufacturing numbers have been weak, so if the PMI follows suit, the greenback could lose ground.

The Japanese economy has been hurt by weak domestic demand, so a strong Retail Sales report in October was excellent news. Still, the yen failed to take advantage and is back above the 123 line on Monday. Meanwhile, the Bank of Japan is holding the course with its monetary policy, as the central bank continues its asset-purchase program of about $60 billion per year. The BOJ minutes from the October policy meeting noted that the inflation target of 2.0% will not be met before 2018, as weak global growth and a planned sales tax will likely hamper economic growth. Policymakers said that the weak Japanese yen had not had a significant effect on the economy.

Solid US numbers, especially from the labor market, has increased speculation that the Federal Reserve will change monetary course and raise interest rates for the first time in ten years. Unemployment Claims were down sharply last week, and even a lukewarm Nonfarm Payroll report late in the week should not present an obstacle for the Fed. However, one important factor against a rate raise is that of low inflation levels, as the Fed has noted in the past that inflation is an important factor in the rate decision process. We’ll get a look at one more round of CPI and PPI reports prior to the Fed policy meeting on December 16, and these releases could cause some volatility in the markets if they are not close to the estimates. Meanwhile, the Fed guessing game continues, and the markets will be closely following every key release and comments from Fed members in the two weeks leading up to the critical December policy meeting

USD/JPY Fundamentals

Sunday (Nov. 29)

• 23:50 Japanese Retail Sales. Estimate 0.9%. Actual 1.8%

Monday (Nov. 30) 

• 1:00 BOJ Governor Haruhiko Kuroda Speaks
• 14:45 US Chicago PMI. Estimate 54.3 points. Actual 48.7 points
• 15:00 US Pending Home Sales. Estimate 1.6%. Actual 0.2%
• 23:50 Japanese Capital Spending. Estimate 2.3%

Upcoming Key Events

Tuesday (Dec. 1) 

• 15:00 US ISM Manufacturing PMI. Estimate 50.6 points

*Key releases are highlighted in bold

*All release times are GMT

USD/JPY for Monday, November 30, 2015

USD/JPY November 30 at 17:30 GMT

USD/JPY 123.21 H: 123.34 L: 122.68

USD/JPY Technical

• USD/JPY showed limited movement in the Asian session. The pair posted gains in the European and North American sessions.
• 123.74 is an immediate resistance line.
• On the downside, 122.40 is providing support.
• Current range: 122.40 to 123.74

Further levels in both directions:

• Below: 122.40, 121.50, 120.40 and 118.53
• Above: 123.74, 125.63 and 126.84

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged on Monday. Long positions retain a solid majority of positions (60:40), which is indicative of strong trader bias towards the pair continuing to move higher.

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.