USD/JPY – Dollar Breaks Above 121, Markets Eye Japanese Inflation

USD/JPY has posted slight gains on Thursday, as the pair trades slightly above the 121 line in the North American session. In Thursday’s economic news, US Advance GDP was close to the estimate, and Unemployment Claims beat expectations. Later in the day, we’ll get a look at Japanese inflation indicators, led by Tokyo Core CPI, and Household Spending, a key consumer indicator. Traders should keep a close eye on Friday’s key event – US Employment Cost Index.

What had been an uneventful week for the currency markets quickly changed on Wednesday, courtesy of the Federal Reserve. The markets had lowered expectations about a rate hike before the end of the year, but the Fed statement revived the possibility of a December hike, and the yen plunged 130 points immediately after the announcement. The Fed stated that it would raise rates when there is further improvement in the US labor market and when inflation rises closer to the 2% target. The markets pounced on the following excerpt from the statement:

“In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation” [emphasis mine]

The next Fed meeting is mid-December, and the markets will be in alert mode for any further hints about a rate hike. As well, key US numbers will be closely monitored, especially employment and inflation data, as the strength of these numbers in the next several weeks will play a critical role in determining whether the Fed will press the rate trigger in December.

Earlier on Thursday, US Advance GDP for the third quarter posted a gain of 1.5%. This was a much softer reading than the Final GDP in Q2 of 3.9%, but was very close to the forecast of 1.6%. Unemployment Claims beat the estimate for a fourth straight week, coming in at 260 thousand. The estimate stood at 264 thousand.

We could see further movement from USD/JPY before the week wraps up, as Japan releases inflation and consumer spending numbers late Thursday. Inflation levels have been anemic, and more declines are expected in the September releases. The BOJ will release its monetary statement soon afterwards, and any hints of further easing from the central bank could send the yen even lower.

USD/JPY Fundamentals

Thursday (Oct. 29)

• 12:30 US Advance GDP. Estimate 1.6%. Actual 1.5%
• 12:30 US Unemployment Claims. Estimate 264K. Actual 260K
• 12:30 US Advance GDP Price Index. Estimate 1.5%. Actual 1.2%
• 13:10 FOMC Member Dennis Lockhart Speaks
• 14:00 US Pending Home Sales. Estimate 1.1%. Actual -2.3%
• 14:30 US Natural Gas Storage. Estimate 70B. Actual  63B.
• 23:30 Japanese Household Spending. Estimate 1.2%.
• 23:30 Japanese Tokyo Core CPI. Estimate -0.2%.
• 23:30 Japanese National Core CPI. Estimate -0.2%.
• 23:30 Japanese Unemployment Rate. Estimate 3.4%

Upcoming Key Events

Friday (Oct. 30)

• Tentative – BOJ Monetary Policy Statement
• 12:30 US Employment Cost Index. Estimate 0.6%

USD/JPY for Thursday, October 29, 2015

USD/JPY October 29 at 16:45 GMT

USD/JPY 121.13 H: 121.17 L: 120.58

USD/JPY Technical

• USD/JPY posted losses in the Asian session, but then reversed directions and recovered in the European and North American sessions.
• 120.40 is an immediate support level.
• 121.50 has weakened in resistance as the pair trades at higher levels.
• Current range: 120.40 to 121.50

Further levels in both directions:

• Below: 120.40, 118.53, 116.90, and 115.90
• Above: 121.50, 122.40 and 123.74

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged on Thursday, consistent with the lack of significant movement from the pair. Long positions retain a commanding majority (59%). This is indicative of trader bias towards the pair 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.