USD/JPY – Yen Improves on Strong Machinery Orders Report

The Japanese yen is showing some strength in the Wednesday session. USD/JPY is currently trading at 101.30. In Japan, Core Machinery Orders posted a strong gain of 8.3%, beating expectations. Japanese PPI declined 3.9%, very close to the estimate. As well, Japanese Tertiary Industry Activity posted a gain of 0.8%, well above the estimate. In the US, today’s highlight is JOLTS Job Openings. This important employment indicator is expected to edge higher to 5.52 million. On Thursday, there are two key events – the Philly Fed Manufacturing Index and Unemployment Claims.

Japanese numbers were a mixed bag on Tuesday. Core Machinery Orders jumped 8.3%, well above the estimate of 3.4%. This marked the indicator’s strongest gain in 5 months. However, the inflation picture remains bleak, as PPI, which measures inflation in the manufacturing sector, declined 3.9% in July. The indicator last posted a gain in March 2015, as deflation remains a serious concern for policymakers. The government unveiled a JPY 28 trillion stimulus package last week, but will this be enough to kick-start the languishing economy and boost inflation? It will be a tough task to convince the Japanese consumer, who remains deeply pessimistic about the economy and will be reluctant to loosen her purse strings. The government is getting little more than moral support from the Bank of Japan, which has refrained from utilizing its major monetary tools – lowering interest rates or expanding its asset-purchase program. Is the BoJ out of monetary ammunition? If so, the yen could gain more ground and move closer to the symbolic 100 level.

US Nonfarm Payrolls, one of the most important indicators, sparkled in July. The July indicator surprised the markets with a huge gain of 255 thousand, crushing the estimate of 180 thousand. This release follows the outstanding June reading of 280 thousand. US wage growth has been a soft spot in the robust labor market, but there was positive news as Average Hourly Earnings gained 0.3%, edging above the forecast of 0.2%. As well, Unemployment Claims remained steady at 4.9%. What will the Federal Reserve do with these numbers? Prior to the payrolls release, a September hike was virtually off the table, especially in light of the soft US GDP report in late July. The Fed has made no secret of the fact that any rate move will be data-dependent, and the stellar job numbers will force to Fed to give serious thought to a move in September. Employment and inflation releases in the next few weeks will be critical factors in determining if the Fed makes a move next month, or waits until December before revisiting the rate question.

USD/JPY Fundamentals

Tuesday (August 9)

• 19:50 Japanese Core Machinery Orders. Estimate 3.4%. Actual 8.3%
• 19:50 Japanese PPI. Estimate -4.0%. Actual -3.9%

Wednesday (August 10)

• 00:30 Japanese Tertiary Industry Activity. Estimate 0.3%. Actual 0.8%
• 10:00 US JOLTS Job Openings. Estimate 5.52M
• 10:30 US Crude Oil Inventories. Estimate -1.3M
• 13:01 US 10-year Bond Auction
• 14:00 US Federal Budget Balance. Estimate -119.0B

Thursday (August 11)

• 8:30 US Unemployment Claims. Estimate 272K

*Key events are in bold

*All release times are EDT

USD/JPY for Wednesday, August 10, 2016

USD/JPY August 10 at 10:55 EDT

Open: 101.93 High: 101.94  Low: 101.11 Close: 101.33

USD/JPY Technical

• USD/JPY recorded sharp losses in the Asian session. The pair is showing limited movement in European trade
• There is strong resistance at 102.36
• 101.20 is under pressure in support following sharp losses by USD/JPY. This line could break in the Wednesday session
• Current range: 101.20 to 102.36

Further levels in both directions:

• Below: 101.20, 99.71 and 98.95
•  Above: 102.36, 103.73, 104.99 and 105.87

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged on Wednesday. Currently, long positions have a strong majority (66%), indicative of trader bias towards USD/JPY reversing directions 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.