USD/JPY – Dollar Pushes Yen Above 104, Key US Data Looms

USD/JPY has posted slight gains in the Friday session, as the pair is trading slightly above the 104 line. On the release front, Japanese PPI declined 3.2% in September, showing an improvement from the previous reading of -3.6%. In the US, it’s a very busy day, with the release of retail sales, PPI and UoM Consumer Confidence. The markets are expecting higher readings from these indicators, and if these forecasts are correct, we could see the US dollar post broad gains in the North American session.

There was more good news from the US labor market, as unemployment claims sparkled again last week. The key indicator dropped to 246 thousand last week, down slightly from 249 thousand a week earlier. The estimate stood at 252 thousand, marking a tenth consecutive week that the indicator has beaten the forecast. Strong job numbers is one of the main arguments of proponents of a rate hike in December, as the labor market, which is close to capacity, continues to fuel steady economic growth.

There were no dramatic comments in the Federal Reserve minutes, but the minutes did underscore the division within the FOMC concerning monetary policy. This was already apparent in the September rate vote, when three members voted against the decision to maintain rates at 0.25 percent. The minutes indicated that some of the members who voted to hold rates chose to fall in line with Janet Yellen, but are in favor of raising rates “relatively soon”. The members in favor of a rate hike believe that ultra-low rates could lead to overly low unemployment levels which could result in inflation rising too quickly. Other policymakers argue that the there is still slack in the labor market, despite the official numbers, and leaving rates on hold could attract more people back into the work force and avoid a spike in inflation. Since there is significant support within the Fed (and the markets) for a rate hike in December, Janet Yellen will be under pressure to press the rate trigger in December. The markets have priced in a December hike at 60 percent and the positive sentiment could help the US dollar continue to move higher. The Fed will next meet in November, but analysts don’t expect a rate move just a week before the presidential election.

The yen lost ground earlier in the week following dovish remarks from the Bank of Japan. Kuroda stated that the bank would likely miss hitting its inflation target of 2% before 2018, but that the BoJ had no intention of changing course, saying it would continue or even strengthen monetary easing in order to achieve its inflation target. Last week, the yen pushed across the 104 line for the first time since early September. The next BoJ policy meeting takes place on October 31 and the markets will be looking for hints as to whether the bank intends to remain on the sidelines. Although the BoJ continues to talk tough about adopting further easing, there is some skepticism in the markets as to whether the bank has any monetary ammunition left. The bank cut rates below zero early in 2016, but this has not had the desired effect, as deflation threatens to undermine an already weak economy.

USD/JPY Fundamentals

Thursday (October 13)

• 19:50 Japanese PPI. Estimate -3.2%

Friday (October 14)

• 8:30 US Core Retail Sales. Estimate 0.4%
• 8:30 US PPI. Estimate 0.2%
• 8:30 US Retail Sales. Estimate 0.6%
• 8:30 US Core PPI. Estimate 0.1%
• 8:30 US FOMC Member Eric Rosengren Speaks
• 10:00 US Business Inventories. Estimate 0.1%
• 10:00 US Preliminary UoM Consumer Sentiment. Estimate 92.1
• 10:00 US Preliminary UoM Inflation Expectations
• 13:30 US Federal Chair Janet Yellen Speaks
• Tentative – Federal Budget Balance. Estimate 30.0B

*All release times are EDT

*Key events are in bold

USD/JPY for Friday, October 14, 2016

USD/JPY October 14 at 4:55 EDT

Open: 103.73 High: 104.27 Low: 103.62 Close: 104.18

USD/JPY Technical

• USD/JPY has posted gains in the Asian and European sessions
• 103.02 is providing strong support
• 104.32 is a weak resistance line and could break during the Friday session
• Current range: 103.02 to 104.32

Further levels in both directions:

• Below: 103.02, 102.36, 101.20 and 100.55
•  Above: 104.32, 105.44 and 106.72

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged in the Friday session. Currently, long positions have a majority (58%), 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.