USD/JPY – Yen Subdued, US Markets on Holiday

USD/JPY is showing very little movement on Monday. The pair is trading at 102.60. On the release front, Japanese Monetary Base was almost unchanged, with a reading of 25.5%. With the US celebrating Independence Day, US markets are closed and there are no US events. Due to light holiday trade, we’re unlikely to see much movement from the pair on Monday.

Japanese indicators were mostly soft last week, underscoring a weak economy. Household Spending and Retail Sales both posted declines, as the Japanese consumer continues to hold tight to her purse strings. Tokyo Core CPI continues to point to deflation, recording a second straight drop of 0.5%. Still, the yen held its own last week, as the aftermath of the Brexit vote has created much uncertainty and instability in financial markets. This has led nervous investors to shy away from risk in favor of the safe-haven Japanese currency. As well, the Bank of Japan is reluctant to adopt further easing, so the yen could continue to rise and move towards the symbolic 100 level.

With the financial markets understandably focused on the stunning Brexit vote, the Federal Reserve’s monetary policy has shifted to the back-burner. That could change later this week, with the release of the Federal Reserve minutes. Will the minutes provide any clues about a rate hike? Yellen and her colleagues have sounded cautious about the US economy, and the financial instability caused by Brexit could delay any hikes until 2017. Gone are the heady days of last December, when the Fed raised rates and talked about a series of rate hikes in 2016. Meanwhile, June has come and gone, and the Fed hasn’t made a move so far this year. Bottom line? Traders shouldn’t count on an imminent rate hike to boost the US dollar; rather, the direction of the currency will largely be data-dependent – the Fed is unlikely to seriously consider any rate hikes unless we see significantly improved employment and inflation numbers.

The Brexit vote to leave the European Union continues to cause deep instability in Europe and the UK and wiped out a staggering $3 trillion from global stock markets. Although the financial markets have stabilized, the British pound has shed about 11 percent since the vote, and continued to drop last week. British politicians have sought to calm the public and the markets, but the pound’s sharp drop on Thursday underscores that the situation is anything but normal. The country’s political picture is fluid, as the Conservatives are choosing a new leader, the Labor Party is in turmoil and elections may not be far away. On the financial front, the pound and the markets have taken a beating and London’s position as a world financial center has been shaken. The UK may have voted “Out”, but there is no timetable as to when the country will leave the EU or what type of trade agreement will define the new economic relationship between the EU and Britain. British leaders are in no rush to leave, but European leaders have called on Britain to exit as soon as possible in order to minimize the uncertainty and instability caused by the Brexit vote. When it comes to the EU Britain finds itself in limbo (“neither in nor out”), and continuing uncertainty from Brexit could cause further volatility in the currency markets.

USD/JPY Fundamentals

Sunday (July 3)

• 19:50 Japanese Monetary Base. Estimate 25.4%. Actual 26.3%

Monday (July 4)

• There are no scheduled Japanese or US events

*Key events are in bold

*All release times are EDT

USD/JPY for Monday, July 4, 2016

USD/JPY July 4 at 6:50 EDT

Open: 102.48 Low: 102.40  High: 102.80 Close: 102.61

USD/JPY Technical

• USD/JPY has shown limited movement in the Asian and European sessions
• 103.73 is a strong resistance line
• 102.36 is providing weak support
• Current range: 102.36 to 103.73

Further levels in both directions:

• Below: 102.36, 101.07, 99.71 and 98.88
•  Above: 103.73, 104.99 and 105.87

OANDA’s Open Positions Ratio

The USD/JPY ratio is showing limited movement on Monday, consistent with the lack of movement from USD/JPY. Long positions have a strong majority (67%), indicative of trader bias towards USD/JPY breaking out and moving 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.