USD/JPY – Yen Edges Lower as US Jobless Claims Beat Expectations, Japanese Inflation Next

USD/JPY has posted slight gains in the Thursday session. In North American trade, the pair is trading just below the 112 level. On the release front, US unemployment claims edged up to 234 thousand, lower than the forecast of 238 thousand. Japan will release a host of inflation indicators, led by Tokyo Core CPI, which an estimate of 0.0%. On Friday, leaders of the G-7 nations meet in Sicily. The US will release revised GDP for the first quarter, which is expected at 0.9%, compared to the initial GDP release, which came in at 0.7%. Other key US indicators include Core Durable Goods Orders and UoM Consumer Sentiment.

The currency markets have shown little response to the Federal Reserve’s minutes from the May policy meeting. Traders hoping for confirmation of a June rate hike came away disappointed, as the minutes conveyed a less hawkish tone than the markets had expected. Policymakers were careful in their message, saying that a rate hike was coming “soon”. Does that mean a move at the June policy meeting? The markets clearly expect a rate hike, as Fed funds futures for a June increase remained at 78% after the minutes were released. At the same time, the Fed has given itself some wiggle room, and could opt to delay a hike until the second quarter if inflation or consumer indicators take an unexpected nosedive. The minutes stated that policymakers wanted to see additional evidence that the recent slowdown in the economy was temporary before raising rates. As for additional hikes in 2017, the markets remain skeptical. The odds for a September rate stand at just 37%. This pessimism is a result of a weak performance from the US economy in Q1, as well as doubts that President Trump, who is facing congressional investigations over his connections with the Russian government, will be able to pass his agenda of cutting taxes and government spending. Gone are the heady days at the end of 2016, when a red-hot US economy had analysts predicting four rate hikes in 2017. At the same time, a strong improvement in economic data could quickly change the cautious tone of the Fed and revive discussion of four rate hikes this year.

The US dollar struggles post Fed minutes

Where are the hawks?

The White House presented President Trump’s 2018 budget proposal to lawmakers in Congress this week, but will it be dead-on-arrival? Trump has promised to slash government spending, and much of the funds for the budget would come from huge cuts to the Medicaid health program and food stamps. The budget proposes slashing more than $600 billion from Medicaid and over $192 billion from food stamps over a decade. Trump has promised to balance the budget within 10 years, claiming this can be achieved through tax cuts and annual growth of 3 percent. However, experts are at odds as to whether the economy can reach and maintain such levels of growth, which is much higher than current economic expansion. The budget proposal is unlikely to remain in its present form for very long on Capitol Hill. Democrats will want nothing to do with it, and Republicans will not want to make drastic cuts to federal programs that will incur the wrath of voters. Still, the Trump administration, which has been in damage-control mode for weeks over the firing of FBI director James Comey, can point to the budget as a step forward in trying to implement Trump’s pro-business agenda.

USD/JPY Fundamentals

Thursday (May 25)

• All Day – OPEC Meetings
• 8:30 US Unemployment Claims. Estimate 238K. Actual 234K
• 8:30 US Goods Trade Balance. Estimate -64.7B. Actual -67.6B
• 8:30 US Preliminary Wholesale Inventories. Estimate 0.2%. Actual -0.3%
• 10:00 FOMC Member Lael Brainard Speaks
• 10:30 US Natural Gas Storage. Estimate 72B. Actual 75B
• 19:30 Japanese National Core CPI. Estimate 0.4%
• 19:30 Japanese Tokyo Core CPI. Estimate 0.0%
• 19:50 Japanese SPPI. Estimate 0.9%

Friday (May 26)

• Day 1 – G7 Meetings
• 8:30 US Core Durable Goods Orders. Estimate 0.4%
• 8:30 US Preliminary GDP. Estimate 0.9%
• 10:00 US Revised UoM Consumer Sentiment. Estimate 97.6

*All release times are GMT

*Key events are in bold

USD/JPY for Thursday, May 25, 2017

USD/JPY May 25 at 10:50 EDT

Open: 111.49 High: 111.94 Low: 111.47 Close: 111.88

USD/JPY Technical

USD/JPY was flat in the Asian session. The pair edged higher in the European session and is unchanged in the North American session

• 110.94 is providing support
• 112.57 is the next line of resistance
• Current range: 110.94 to 112.57

Further levels in both directions:

• Below: 110.94, 109.77 and 108.13
•  Above: 112.57, 113.55, 114.96 and 115.90

OANDA’s Open Positions Ratio

USD/JPY ratio is showing little movement in the Thursday session. Currently, long positions have a majority (58%). This is indicative of trader bias towards USD/JPY continuing to move to higher levels.

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.