USD/JPY – Streaking Yen Closing in on 100 on Brexit Fears

The Japanese yen continues to move higher on Wednesday. USD/JPY is trading at 100.30, within striking distance of the symbolic 100 level. On the release front, the US will release ISM Non-Manufacturing PMI, with the estimate standing at 53.3 points. The spotlight will be on the Federal Reserve, which will release the minutes of its June policy meeting. In Japan, there are no economic releases on the schedule. BoJ Governor Haruhiko Kuroda will address an event in Tokyo. On Thursday, employment numbers will be in focus, with the release of ADP Nonfarm Employment Change and Unemployment Claims.

The yen has been a big winner from the Brexit earthquake, as jittery investors have dumped risk assets in favor of the safe-haven Japanese currency. Brexit aftershocks are far from over, as underscored by the woeful British pound, which is struggling at 31-year lows. With risk sentiment decidedly negative, the yen is poised to break below the 100 level, which last occurred just after the Brexit vote in late June. Although the Bank of Japan has been reluctant to adopt further easing measures, it may have to act in order to curb a streaking yen which is hurting the export sector. Japanese officials have repeatedly warned against what they have termed “currency manipulations” and have threatened to intervene if the yen continues to move higher.

The Brexit vote in late June continues to preoccupy the markets, and the Federal Reserve and US monetary policy have understandably taken a back seat. The Fed will be back on center stage later on Wednesday, as the Fed releases the minutes of its June policy meeting, which was held just one week before the Brexit vote. Fed Chair Janet Yellen and her colleagues have sounded cautious about the US economy, and the financial instability caused by Brexit could delay any rate hikes until 2017. The US economy is in good shape, but the Fed hasn’t raised rates since last December and is unlikely to seriously consider any rate hikes unless employment and inflation numbers point upwards. Although Yellen recently said that Brexit would have an impact on the US, San Francisco Federal Reserve President John Williams seemed to disagree with that assessment. On Tuesday, Williams said that the US markets had reacted to Brexit as expected, and the impact on the US economy would be much smaller than the euro crisis of 2011-2012. Is Brexit having an impact on the Fed’s monetary stance? We may get an answer to that question when the Fed meets again for a policy meeting on July 27.

Britain may have voted “Out”, so now what? There is no timetable as to when the exit will take place or what type of trade agreement will define the new economic relationship between the EU and Britain. British leaders are in no rush to leave, but European leaders have called on Britain to exit as soon as possible in order to minimize the uncertainty and instability caused by the Brexit vote. When it comes to the EU, Britain finds itself in limbo (“neither in nor out”), and the lack of clarity regarding Britain’s exit from the EU will likely translate into continuing volatility in the currency markets.

USD/JPY Fundamentals

Wednesday (July 6)

• 8:30 US Trade Balance. Estimate -40.0B
• 9:00 US FOMC Daniel Tarullo Speaks
• 9:45 US Final Services PMI. Estimate 51.5
• 10:00 US ISM Non-Manufacturing PMI. Estimate 53.3
• 14:00 US FOMC Meeting Minutes
• 20:30 BoJ Governor Haruhiko Kuroda Speaks

Updated Key Events

Thursday (July 7)

• 8:15 US ADP Nonfarm Employment Change. Estimate 158K
• 8:30 US Unemployment Claims. Estimate 269K

*Key events are in bold

*All release times are EDT

USD/JPY for Wednesday, July 6, 2016

USD/JPY July 6 at 6:40 EDT

Open: 101.16 Low: 100.19  High: 101.28 Close: 100.29

USD/JPY Technical

• USD/JPY has posted losses in the Asian and European sessions
• 0.9971 is under pressure in support. It could break in the Wednesday session
• 101.07 has switched to a resistance role following losses by USD/JPY in the Wednesday session
• Current range: 99.71 to 101.07

Further levels in both directions:

• Below: 99.71, 98.88 and 97.78
•  Above: 101.07, 102.36, 103.73 and 104.99

OANDA’s Open Positions Ratio

The USD/JPY ratio has reversed directions on Wednesday and is showing slight movement towards long positions Wednesday. Long positions retain a strong majority (67%), indicative of trader bias towards USD/JPY reversing directions and moving 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.