USD/JPY – Yen Drifting as Markets Look for Rate Clues from Fed Minutes

USD/JPY continues to show little movement this week, as the pair drifts in the Wednesday session. In North American trade, the pair is trading at the 112 level. On the release front, US Existing Home Sales dropped sharply to 5.57 million, short of the forecast of 5.65 million. Later on, the Federal Reserve will release the minutes of its May policy meeting. On Thursday, the US releases unemployment claims and Japan will release Tokyo Core CPI, a key inflation indicator.

Is the US housing sector in trouble? On Wednesday, Existing Home Sales fell to 5.57 million in April, compared to 5.71 million in the March estimate. This report comes on the heels of New Home Sales, which dropped to 569 thousand, well short of the forecast of 611 thousand. To be fair, the March readings for both indicators were very high, so the April numbers could just be a blip. However, if upcoming housing reports miss expectations, concerns will grow about the health of the US economy.

Since the Federal Reserve raised rates back in March, there has been plenty of speculation as to the timing of another rate hike. The markets are expecting the Fed to press the rate trigger at the June policy meeting. The odds of a rate hike have increased to 83%, according to the CME Group. Just last week, the likelihood of a rate increase stood at 73%. Despite the market speculation, Fed policymakers are keeping their cards close to their chest, at least in their public appearances. On Tuesday, Philadelphia Fed President Patrick Harker said that a June move was a “distinct possibility”, but cautioned that a weak inflation report could delay a rate hike. Earlier in the week, Robert Kaplan, President of the Dallas Fed, stated that three interest increases in 2017 was “appropriate”. The Fed minutes are expected to underscore support for a June move, but may not shed much light on what happens after that. Still any clues about the Fed’s rate plans could shake up the listless USD/JPY.

With President Trump still overseas on his first presidential trip, the White House presented Trump’s 2018 budget proposal to Congress on Tuesday. Trump has promised to slash government spending, and the budget proposes major cuts to the Medicaid health program, disability benefits and food stamps. Trump has outlined an ambitious program to cut government spending by $3.6 trillion in the next 10 years and achieving a balanced budget by 2020. The budget also includes $25 billion for paid leave after childbirth and some $200 billion for infrastructure programs. It’s a safe bet that Trump’s budget will face tough opposition on Capitol Hill, with both Democrats and Republicans unlikely to go along with such deep cuts to social assistance programs. Still, with the Trump administration beset by Congressional investigations, the White House can point to the budget as a step forward in his agenda to cut government spending.

USD/JPY Fundamentals

Wednesday (May 24)

• 8:58 US HPI. Estimate 0.5%. Actual 0.6%
• 10:00 US Existing Home Sales. Estimate 5.65M. Actual 5.71M
• 10:30 US Crude Oil Inventories. Estimate -2.4M
• 14:00 US FOMC Minutes
• 18:00 US FOMC Member Robert Kaplan Speaks

Thursday (May 25)

• 8:30 US Unemployment Claims. Estimate 238K
• 19:30 Japanese Tokyo Core CPI. Estimate 0.0%

*All release times are GMT

*Key events are in bold

USD/JPY for Wednesday, May 24, 2017

USD/JPY May 24 at 10:20 EDT

Open: 111.78 High: 112.06 Low: 111.71 Close: 111.88

USD/JPY Technical

USD/JPY has been flat throughout the Wednesday session

• 110.94 is a weak support level
• 112.57 is the next line of resistance
• Current range: 110.94 to 112.57

Further levels in both directions:

• Below: 110.94, 109.77 and 108.13
•  Above: 112.57, 113.55, 114.96 and 115.90

OANDA’s Open Positions Ratio

USD/JPY ratio has shown considerable movement towards long positions. Currently, long positions have a majority (60%). This is indicative of trader bias towards USD/JPY breaking out and moving to higher levels.

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.