USD/JPY – Dollar Close to 106 Yen as US Data Impresses

The Japanese yen has resumed its downward slide on Thursday and posted sharp losses. In the North American session USD/JPY is trading at 105.80. On the release front, there are no Japanese events on Thursday. In the US, the Producer Price Index gained 0.5 percent, beating the estimate. Unemployment Claims remained at 254 thousand, beating expectations. Friday promises to be busy, as the US releases consumer inflation, retail sales and consumer confidence reports.

There was positive news out of the US on Thursday. Inflation showed some strength, as PPI climbed 0.5 percent, ahead of the estimate of 0.3 percent. This marked the highest monthly gain since May 2015. Core PPI followed suit with a gain of 0.4 percent, beating the forecast of 0.1 percent. On the employment front, Unemployment Claims remained at 254 thousand, below the estimate of 263 thousand. Is US inflation on the move? We’ll get a look at CPI numbers on Friday, and a solid release could boost the US dollar.

Japanese Prime Minister Shinzo Abe’s recent election victory has paved the path for further monetary stimulus as part of the government’s economic platform, popularly known as ‘Abenomics’. The controversial program is characterized by ultra-easy monetary policy and fiscal spending, with the aim of kick-starting the economy and creating inflation. Previous rounds of monetary easing have made the yen less attractive compared to other currencies, pushing down its value. Abe has asked Economic Minister Nobuteru Ishihara to prepare a fiscal stimulus package and the markets will be focusing on the Bank of Japan, which meets in late July and could adopt further easing measures. The yen has slumped on all the talk about monetary easing, shedding some 500 points this week. USD/JPY is trading close to the 106 level, its highest level since the Brexit vote in late June. The yen gained ground after Brexit, as the political and economic turmoil which resulted bolstered the safe-haven yen. With the divorce between Britain and the European Union likely to be acrimonious and difficult, the yen could rebound on Brexit aftershocks.

When the Federal Reserve raised interest rates last December, it marked the first time it had done so in close to a decade. After the historic move,  there were high hopes that the Fed would continue with a series of hikes in 2016. Fast forward to July, and the Fed is yet to make a move this year, as the US economy has not matched its impressive growth rates in 2015. Last week’s Fed minutes reinforced the perception that the Fed is unlikely to tighten policy anytime soon, as the tentative Fed remains cautious about the strength of the US economy. Although some Fed members have said that rates could be raised up to two times in 2016, clearly the markets aren’t buying it. Given the current economic climate, the markets are pessimistic about any rates moves before 2017. Investors have priced in no chance of a rate increase at the next Fed meeting on July 26-27, and just an eight percent chance of a hike in 2016. Still, market sentiment can change very quickly, so if US employment and inflation numbers improve in the second half of the year, the likelihood of a rate hike this year will increase.

USD/JPY Fundamentals

Thursday (July 14)

• 8:30 US PPI. Estimate 0.3%. Actual 0.5%
• 8:30 US Unemployment Claims. Estimate 263K. Actual 254K
• 8:30 US Core PPI. Estimate 0.1%. Actual 0.4%
• 10:30 US Natural Gas Storage. Estimate 61B

Friday (July 15)

• 8:30 US CPI. Estimate 0.2%
• 8:30 US Core CPI. Estimate 0.2%
• 8:30 US Retail Sales. Estimate 0.4%
• 8:30 US Core Retail Sales. Estimate 0.1%
• 10:00 US Preliminary UoM Consumer Sentiment. Estimate 93.7 

*Key events are in bold

*All release times are EDT

USD/JPY for Thursday, July 14, 2016

USD/JPY July 14 at 10:00 EDT

Open: 104.04 High: 105.94  Low: 103.93 Close: 105.81

USD/JPY Technical

• USD/JPY recorded small gains in the Asian session but and continued with sharp gains in European trade. The pair is unchanged in North American trade
• 105.87 is under strong pressure as resistance
• 104.99 has switched to support after sharp gains by USD/JPY in the Thursday session
• 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 showed slight gains in short positions on Thursday. Currently, long positions retain a strong majority (62%), indicative of trader bias towards USD/JPY continuing to move 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.