USD/JPY – Yen Steady as Markets Eye US GDP

USD/JPY is showing limited movement in the Thursday session. Currently, the pair is trading at 117.50. On the release front, today’s highlight is US Final GDP. We’ll also get a look at Core Durable Goods Orders and unemployment claims. On Friday, there are two key indicators – New Home Sales and Revised UoM Consumer Sentiment. Japanese markets will be closed for a national holiday.

There were no surprises from the Bank of Japan, which held a policy meeting earlier this week. The bank held rates at -0.10%, where they have been pegged since late January. At that time, the move to adopt negative rates sent shock waves in the markets and the yen plunged in February, posting sharp losses of 7.4 percent. After the December announcement, BoJ Governor Haruhiko Kuroda sounded optimistic about the economy but also went out of his way to dampen any speculation that the BoJ was planning to raise rates in the near future. Kuroda sounded unconcerned about the yen’s recent losses, stating that the weak Japanese currency has raised inflation by boosting import costs and that the BoJ would continue its program of “powerful monetary easing” as the bank tries to reach its goal of two percent inflation. It’s been a dismal fourth quarter for the Japanese currency, which has fallen 15.4% since October 1.

The US economy continues to expand in impressive fashion, as underscored by strong GDP forecasts for the third quarter. Preliminary GDP came in at 3.2%, beating the forecast of 3.0%. Final GDP is expected to be even stronger, with an estimate of 3.3%. If the indicator matches or beats this rosy prediction, the US dollar could respond with gains.

When the Federal Reserve raised interest rates in December 2015, the Fed confidently predicted a series of rate hikes in 2016 in order to keep a hot US economy in check. However, the Fed remained on the sidelines throughout 2016 and refrained from any rate hikes until last week. There were several false starts along the way, as expectations that the Fed would raise rates earlier in 2016 failed to materialize. This led to sharp criticism of Janet Yellen for failing to provide a clear monetary policy. Yellen seems to have been keenly aware of this, as the Fed did everything short of buying advertisements in daily newspapers to get out the message that it planned to raise rates in December. Indeed, a rate hike was priced in as high as 100% by some analysts. Yellen should certainly be commended for a clear message to the markets.

Now that the Fed has finally pressed the rate trigger, what’s next for Janet Yellen & Co.? In September, Fed officials said they expected two rate hikes in 2017, but the Fed is now projecting three or even four hikes next year. However, projections need to be adjusted to economic conditions, and the markets will understandably be somewhat skeptical about Fed rate forecasts. As well, the wild card of Donald Trump could also play a critical role in monetary policy. Trump’s economic platform remains sketchy, apart from declarations that he will increase government spending and cut taxes. Still, there is growing talk about ‘Trumpflation’, with the markets predicting that Trump’s policies will increase inflation levels, which have been persistently weak. If inflation levels do heat up, there will be pressure on the Fed to step in and raise interest rates.

USD/JPY Fundamentals

Thursday (December 22)

• 8:30 US Core Durable Goods Orders. Estimate 0.2%
• 8:30 US Final GDP. Estimate 3.3%
• 8:30 US Unemployment Claims. Estimate 255K
• 8:30 US Durable Goods Orders. Estimate -4.9%
• 8:30 US Final GDP Price Index. Estimate 1.4%
• 9:00 US HPI. Estimate 0.4%
• 10:00 US Core PCE Price Index. Estimate 0.1%
• 10:00 US Personal Spending. Estimate 0.4%
• 10:00 US CB Leading Index. Estimate 0.2%
• 10:00 US Personal Income. Estimate 0.3%
• 10:30 US Natural Gas Storage. Estimate -201B

Friday (December 23)

• 10:00 US New Home Sales. Estimate 575K
• 10:00 US Revised UoM Consumer Sentiment. Estimate 98.2

*All release times are GMT

*Key events are in bold

USD/JPY for Thursday, December 22, 2016

USD/JPY December 22 at 5:40 EST

Open: 117.62 High: 117.75 Low: 117.39 Close: 117.52

USD/JPY Technical

• USD/JPY has been flat in the Asian and European sessions
• 116.88 is providing support
• 118.05 is the next resistance line
• Current range: 116.88 to 118.05

Further levels in both directions:

• Below: 116.88, 115.88 and 114.83
•  Above: 118.05, 118.85, 119.83 and 121.44

OANDA’s Open Positions Ratio

USD/JPY ratio remains unchanged this week. Currently, long positions have a majority (56%). This is 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.