USD/JPY – Yen Posts Losses, Markets Eye US Housing Release

USD/JPY has posted gains on Wednesday, continuing the trend that has marked the pair all week. The pair is trading at 112.70 in the European session. On the release front, it’s a quiet day. The US will release New Home Sales and Crude Oil Inventories. There are no Japanese events on the schedule.

Despite the Bank of Japan’s best efforts, inflation remains anemic, and the threat of deflation is a nightmarish possibility for policymakers. The recent BoJ minutes warned that inflation levels are unlikely to improve, and estimates for upcoming indicators are not promising. Tokyo CPI, a key indicator, will be released on Thursday, and the estimate stands at -0.2 percent, compared to the -0.1% reading a month earlier. The indicator has mustered just one gain since June 2015, underscoring a sluggish economy which has failed to generate any inflation. The Chinese slowdown and collapse in oil prices have exacerbated soft inflation levels. Although there is talk of the BoJ making some aggressive easing moves at its April policy meeting, it is questionable whether the BoJ has any monetary ammunition left, given that lowering rates into negative territory back in January has had little effect on the economy.

The US manufacturing sector has struggled, hurt by the global slowdown which has meant less demand for US-produced goods. Recent manufacturing readings have reflected a sector in deep trouble, so the markets were surprised as the Richmond Manufacturing Index surged in March. The indicator, which measures activity in the US Atlantic region, jumped to 22 points, its highest level since June 2010. We’ll get a look at additional manufacturing indicators on Thursday, with the release of US durable good reports.

Will the real Federal Reserve please stand up? Last week’s Federal Reserve policy statement appeared to pour cold water on any imminent rate hikes, but “not so fast”, according to two Federal Reserve officials. On Monday, John Williams, president of the San Francisco Fed, said that the Fed could raise rates in April and June, if economic conditions improve. Although the dot plot (an FOMC projection of rate hikes) was lowered at the March meeting, Williams insisted that the Fed had not changed its path of rate hikes. His comments were echoed by Atlanta Fed Dennis Lockhart, who also said that an April rate move was a clear possibility. Lockhart noted that the US economy was holding up well, despite weak global conditions. Lockart said that the economy was close to full employment and the Fed’s target of 2 percent inflation was attainable. However, it should be kept in mind that neither Willams nor Lockhart is a voting member of the FOMC. On Wednesday, St. Louis Federal President James Bullard said that with the US unemployment rate at very low levels, the Fed could be forced to raise rates sooner rather than later.

USD/JPY Fundamentals

Wednesday (March 23)

• 15:00 US New Home Sales. Estimate 512K
• 15:30 US Crude Oil Inventories. Estimate 2.5M

Thursday (March 24)

• 10:00 US FOMC Member James Bullard Speaks
• 13:30 US Core Durable Goods Orders. Estimate -0.2%
• 13:30 US Unemployment Claims. Estimate 267K

*Key releases are highlighted in bold

*All release times are DST

USD/JPY for Wednesday, March 23, 2016

USD/JPY March 23 at 7:05 DST

Open: 112.25 Low: 112.13 High: 112.76 Close: 112.68

USD/JPY Technical

• USD/JPY was uneventful in the Asian session and has posted losses in European trade
• There is resistance at 113.86
• 112.48 is providing support
• Current range: 112.48 to 113.86

Further levels in both directions:

• Below: 112.48, 111.50, 109.87 and 108.37
• Above: 113.86, 114.65 and 115.59

OANDA’s Open Positions Ratio

USD/JPY ratio remains almost unchanged this week. Long positions command a strong majority (64%), indicative of strong trader bias towards the pair continuing to move to higher levels.

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.