USD/JPY – Range Bound at Start of Week

USD/JPY has posted modest gains on Monday, as the pair trades at 120.70 in the North American session. In the US, the key event of the day, ISM Manufacturing PMI, came in at 50.1 points, very close to the forecast of 50.0 points. On Friday, the Bank of Japan voted to maintain its current stimulus program.

With the Japanese economy continuing to stagnate, analysts were split on whether the BOJ would respond with further easing measures in order to kick-start the economy. In the end, the central bank held off from additional stimulus, but reiterated that it would increase monetary base, through purchasing assets, at an annual level of 80 trillion yen. The release came on the heels of September inflation indicators which dropped below zero. The BOJ has sounded positive, saying that the economy is undergoing moderate growth. However, investors remain unconvinced, as inflation is nowhere near the government target of 2%, and the economy suffers from the twin blows of weak consumer spending and less global demand for Japanese products. The BOJ remains under strong pressure to increase stimulus, and this will continue to weigh on the Japanese yen.

The Federal Reserve surprised the markets last week, issuing a policy statement which was more hawkish and transparent than expected. The Fed said that a rate hike was a possibility in December, depending on employment and inflation numbers. The markets had essentially written off a move by the Fed before 2016, so the statement caused sharp volatility in the currency markets, with the US dollar showing broad gains after the dust had settled. With 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. Still, traders should keep in mind that the markets sometimes overreact to Fed statements or comments from Fed policymakers, and the central bank could easily continue to wait on the sidelines until 2016.

With the Federal Reserve statement behind us, the markets can once again focus on economic releases. There was much anticipation ahead of the US Advance GDP for the third quarter, which was released on Thursday. As it turned out, this key event didn’t shake up the markets, as the reading of a 1.5% gain was almost identical to the forecast of 1.6%. Still, this figure is much lower than the Q2 Final GDP of 3.9%, pointing to a slowdown in the US economy. Meanwhile, Unemployment Claims beat the estimate for a fourth straight week, coming in at 260 thousand. The estimate stood at 264 thousand. On Friday, US key releases wound up the week on a positive note. Employment Cost Index jumped to 0.6%, pointing to an increase in wages for US workers. The UoM Consumer Sentiment improved to 90.0 points, within expectations.

USD/JPY Fundamentals

Monday (Nov. 2)

• 14:45 US Final Manufacturing PMI. Estimate 54.0 points. Actual 54.1 points
• 15:00 US ISM Manufacturing PMI. Estimate 50.0 points. Actual 50.1. points
• 15:00 US Construction Spending. Estimate 0.5%. Actual 0.6%
• 15:00 US ISM Manufacturing Prices. Estimate 39.5 points. Actual 39.0 points
• 17:00 FOMC Member John Williams Speaks
• 19:00 US Loan Officer Survey

USD/JPY for Monday, November 2, 2015

USD/JPY November 2 at 16:20 GMT

USD/JPY 120.73 H: 120.78 L: 120.25

USD/JPY Technical

• USD/JPY posted losses in the Asian session, but then reversed directions and recovered in the European session. The pair has posted modest gains in the North American session.
• 120.40 is a weak support level.
• 121.50 is an immediate resistance line.
• 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 Monday, 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.