USD/JPY – Yen Subdued as Japanese Markets Closed for Holiday

With Japanese markets closed on Monday for Marine Day, it’s a quiet start for the Japanese yen. In the North American session, the yen is trading at 105.50. The markets will have few economic cues during the day. There are no Japanese events, while the US has just two minor indicators on the schedule. NAHB Housing Market Index showed little change, posting a reading of 59 points. TIC Long-Term Purchases will be published later in the day. On Tuesday, the US will release Building Permits, a key event.

The markets had plenty of US consumer indicators to sift through on Friday, and the numbers were a mixed bag. US consumer inflation reports posted small gains of 0.2%, as inflation levels remain soft. There was better news on the consumer spending front, as Core Retail Sales posted a strong gain of 0.7%, beating the estimate. The UoM Consumer Sentiment report dipped below the 90-point level for the first time in three months, short of expectations. The Federal Reserve is unlikely to raise rates before September at the earliest, unless there is some strong improvement in economic data, particularly inflation and wage growth, which remain at low levels.

It was a brutal week for the yen, which plunged close to 600 points before reversing directions and closing the week with losses of 400 points. The yen dropped to levels not since late June, as Prime Minister Shinzo Abe’s election victory last week has paved the path for further monetary stimulus as part of the government’s economic platform. Abe has asked Economic Minister Nobuteru Ishihara to prepare a fiscal stimulus package and the markets will be keeping an eye on the Bank of Japan, which meets in late July and could adopt further easing measures. The yen had gained ground after the Brexit vote, even breaking below the 100-level, as the political and economic turmoil bolstered the safe-haven yen. Still, with the divorce between Britain and the European Union likely to be acrimonious and difficult, the yen could rebound on Brexit aftershocks.

On the political front in Britain, there was plenty of drama  last week. Theresa May replaced David Cameron as Prime Minister on Wednesday, as the changing of the guard at 10 Downing took place much more quickly than expected – Cameron was widely expected to hang on as caretaker leader until October. May didn’t waste any time in making key appointments and axing some veteran ministers in the process. She has appointed a minister in charge of the Brexit negotiations with the EU and has penciled in Boris Johnson as foreign secretary. Johnson and EU leaders do not enjoy a good relationship, but all will have to roll up their sleeves and get down to the business at hand – commencing negotiations over Britain’s departure and establishing a new trade relationship between the EU and its island neighbor.

USD/JPY Fundamentals

Monday (July 18)

• 10:00 US NAHB Housing Market Index. Estimate 60 points
• 16:00 US TIC Long-Term Purchases. Estimate 31.6B

Upcoming Key Releases

Tuesday (July 19)

• 8:30 US Building Permits. Estimate 1.15M

*Key events are in bold

*All release times are EDT

USD/JPY for Monday, July 18, 2016

USD/JPY July 18 at 10:20 EDT

Open: 105.39 High: 105.86  Low: 105.25 Close: 105.48

USD/JPY Technical

• USD/JPY is showing limited movement in light trade on Monday
• 105.87 is a weak resistance line
• 104.99 is providing support
• Current range: 104.99 to 105.87

Further levels in both directions:

• Below: 104.99, 103.73, 102.36 and 101.07
•  Above: 105.87, 106.81 and 107.65

OANDA’s Open Positions Ratio

The USD/JPY ratio has shown movement towards short positions. Currently, long positions retain a majority (57%), indicative of trader bias towards USD/JPY breaking out and moving to higher ground.

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.