USD/JPY – Strong Yen at 101, Japanese Current Account Next

The Japanese yen is showing little movement on Thursday, as USD/JPY is trading slightly above the 101 line. In the US, employment data will be in focus, with the publication of ADP Nonfarm Employment Change and Unemployment Claims. In Japan, today’s highlight is Current Account. On Friday, we’ll get a look at the all-important Nonfarm Employment Change, with the markets expecting a strong turnaround after the May shocker of just 38 thousand. The estimate stands at 174 thousand.

The Japanese yen has taken full advantage of the Brexit referendum, which saw Britain vote to exit the European Union. The yen has posted strong gains of 3.5 percent since Brexit, as jittery investors have dumped risk assets in favor of the safe-haven Japanese currency. Brexit aftershocks are far from over, as underscored by the woeful British pound, which is struggling at 30-year lows. With risk sentiment decidedly negative, the yen could break below the symbolic 100 level, which last occurred just after the Brexit vote in late June. Although the Bank of Japan has been reluctant to adopt further easing measures, it may have to act in order to curb a streaking yen which is hurting the export sector. Japanese officials have repeatedly warned against what they have termed “currency manipulations” and have threatened to intervene if the yen continues to move higher.

The Federal Reserve released the minutes of its June policy meeting, and the tone was one of prudence and caution. Policymakers expressed concerns about a slowdown and hiring and the health of the US economy. The June meeting took place just one week before Britain voted to leave the EU, which has caused turmoil in the markets and sent bond yields to record lows. The minutes indicated that Fed members projected two rate increases before the end of the year, but that forecast is likely out-of-date following the shock waves from Brexit. Given the current economic climate, the markets are pessimistic about any rates moves before 2017. Investors have priced in no chance of a rate increase at the next Fed meeting on July 26-27, and just an 8 percent chance of a hike in 2016. However, if US employment and inflation numbers improve in the second half of the year, the likelihood of a rate hike will certainly increase.

Fed Chair Janet Yellen and her colleagues continue to sound cautious about the US economy, and the financial instability caused by Brexit could delay any rate hikes until 2017. The US economy is in good shape, but the Fed hasn’t raised rates since last December and is unlikely to seriously consider any rate hikes unless employment and inflation numbers point upwards. Although Yellen recently said that Brexit would have an impact on the US, San Francisco Federal Reserve President John Williams seemed to disagree with that assessment. On Tuesday, Williams said that the US markets had reacted to Brexit as expected, and the impact on the US economy would be much smaller than the euro crisis of 2011-2012. Is Brexit having an impact on the Fed’s monetary stance? We may get an answer to that question when the Fed meets again for a policy meeting on July 26-27.

USD/JPY Fundamentals

Thursday (July 7)

• 1:00 Japanese Leading Indicators. Estimate 100.1%. Actual 100.0%
• 7:30 US Challenger Job Cuts
• 8:15 US ADP Nonfarm Employment Change. Estimate 158K
• 8:30 US Unemployment Claims. Estimate 269K
• 10:30 US Natural Gas Storage. Estimate 42B
• 11:00 US Crude Oil Inventories. Estimate -2.1M
• 19:50 Japanese Current Account. Estimate 1.52T
• 19:50 Japanese Bank Lending
• 20:00 Japanese Average Cash Earnings. Estimate 0.5%

Upcoming Key Events

Friday (July 8)

• 8:30 US Average Hourly Earnings. Estimate 0.2%
• 8:30 US Nonfarm Employment Change. Estimate 174K
• 8:30 US Unemployment Rate. Estimate 4.8%

*Key events are in bold

*All release times are EDT

USD/JPY for Thursday, July 7, 2016

USD/JPY July 7 at 9:40 EDT

Open: 101.13 Low: 100.61  High: 101.25 Close: 101.12

USD/JPY Technical

• USD/JPY has posted limited movement in the Asian and European sessions
• 102.36 is a strong resistance line
• 101.07 was tested earlier in support and is fluid. It will likely see further action during the day
• Current range: 101.07 to 102.36

Further levels in both directions:

• Below: 101.07, 99.71, 98.88 and 97.78
•  Above: 102.36, 103.73 and 104.99

OANDA’s Open Positions Ratio

The USD/JPY ratio is unchanged on Thursday, consistent with the lack of movement from USD/JPY. Long positions retain 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.