USD/JPY – Yen Subdued in Data-Light Tuesday

USD/JPY is steady on Tuesday, following losses which marked the Monday session. The pair is trading quietly at 109.50. On the release front, it continues to be a quiet week. Today’s highlight is US New Home Sales. The markets are expecting the indicator to improve in the April report, with the estimate standing at 521 thousand. There are no Japanese releases on the schedule.

Japanese Trade Balance improved to JPY 0.43 trillion, compared to a March surplus of JPY 0.28 trillion. Japan has recorded five straight months in the black, with the surpluses increasing each month. The strong figure was helped by a sharp dive in imports. At the same time, exports have also fallen, as soft global demand continues to take a toll on the export sector. Meanwhile, the G7 finance ministers held meetings last week in Tokyo. There was strong disagreement between the US and Japan regarding recent statements from Japan that it would intervene in the currency markets to curb the yen’s sharp appreciation in 2016. Japanese Finance Minister Taro Aso insisted that recent currency moves were “one-sided and speculative” and recent yen gains had been disorderly. US Treasury Secretary Jack Lew countered that the yen’s move were not disorderly. The tension between the US and Japan over the yen was not resolved at the G-7 meeting and is likely to heat up if the currency rebounds and moves closer to the symbolic 100 level.

The Federal Reserve’s minutes were surprisingly hawkish in tone, and this led to strong volatility in the currency markets last week. It has also renewed market speculation about a June rate hike. The Fed is unlikely to make a move if key indicators don’t show improvement, particularly inflation indicators. On Monday, FOMC members James Bullard and John Williams voiced support for further rate hikes. Bullard said that the Fed planned to resume rate hikes if the US economy strengthened, while Williams reiterated that he expected the Fed to raise rates two or three times in 2016. However, there appears to be a gap between what Fed members are saying and market sentiment, as many analysts are projecting only one rate hike this year. The guessing game as to what the Fed has in mind is likely to continue into June, but it’s safe to say that another rate move will be data-dependent, so stronger US numbers will increase the likelihood of a quarter-point hike at the June policy meeting.

USD/JPY Fundamentals

Tuesday (May 24)

• 10:00 US New Home Sales. Estimate 521K
• 10:00 US Richmond Manufacturing Index. Estimate 9 points

*Key releases are highlighted in bold

*All release times are EDT

USD/JPY for Tuesday, May 24, 2016

USD/JPY May 24 at 4:30 EDT

Open: 109.37 Low: 109.16 High: 109.64 Close: 109.53

USD/JPY Technical

• USD/JPY was flat in the Asian session and has posted small gains in European trade
• 109.87 is a weak resistance line
• 108.37 is providing strong support
• Current range: 108.37 to 109.87

Further levels in both directions:

• Below: 108.37, 107.57 and 106.19
•  Above: 109.87, 110.66, 111.30 and 112.26

OANDA’s Open Positions Ratio

The USD/JPY ratio is almost unchanged on Tuesday, consistent with the lack of movement from USD/JPY. Long positions have a majority (55%), indicative of trader bias towards USD/JPY 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.