USD/JPY: Yen Stable on Improved Japanese Manufacturing Data

USD/JPY is steady at the start of the week, as the pair trades in the mid-101 range late in the European session on Monday. On the release front, Japanese posted a gain of 0.5%, its best showing since January. Housing Starts was dismal, posting its sharpest decline in over four years. In the US, today’s highlight is Pending Home Sales, with the markets expecting a strong reading for May.

Last week’s US releases were mixed. Unemployment Claims continued to show little change, extending the trend we have seen in the month of June. The key indicator came in at 312 thousand, slightly better than the estimate of 314 thousand. Earlier in the week, GDP shocked the markets with a five-year low and durables softened as well. GDP dropped by 2.9%, much worse than the 1.8% loss expected by the markets. Core Durable Goods Orders declined by 0.1%, its first decline in five months. The estimate stood at 0.3%. Durable Goods Orders looked even worse, coming in at -1.0%, shy of the estimate of -0.1%. On a positive note, CB Consumer Confidence improved in May, and this could translate into stronger consumer spending, which is critical for economic growth.

Japanese inflation indicators posted strong gains in May, reinforcing Prime Minister Shinzo Abe’s statement last week that deflation, which had hobbled the economy for some 15 years, had ended. Tokyo Core CPI posted a 2.8% gain, while National Core CPI jumped 3.2%, as both indicators matched expectations. This follows the Corporate Services Price Index which posted a strong gain of 3.6%, well above the estimate of 3.2%. Meanwhile Retail Sales dipped came in at -0.4%, but this was much better than the estimate of -1.9%. Household Spending, an important consumer spending indicator, plunged by 8% last month, its third decline in four readings. The estimate stood at -1.9%.

Last week, BOJ Governor Kuroda said the central bank’s quantitative and qualitative easing policy was achieving its goals and gave no indication about any plans to change current monetary policy. Kuroda noted that growth had improved and deflation curbed, but that inflation was around 1%, well short of the target of 2%. The BOJ had hoped to reach its inflation target by 2015, but Kuroda acknowledged that this goal would take longer, and pledged that the BOJ would continue its current stance of large-scale monetary easing until the inflation target was reached. This means that we could see USD/JPY continue to trade at high levels for quite some time.

USD/JPY for Monday, June 30, 2014

USD/JPY June 30 at 11:50 GMT

USD/JPY 101.38 H: 101.46 L: 101.24

USD/JPY Technical

• USD/JPY has not shown much movement in the Asian or European sessions.
• 102.53 remains a strong resistance line.
• On the downside, 101.19 is under pressure. Will the pair break below this barrier? The next support level is the round number of 100, which has held firm since November.
• Current range: 101.19 to 102.53

Further levels in both directions:

• Below: 101.19, 100.00, 99.57 and 98.97
• Above: 102.53, 103.07, 104.17 and 105.70

OANDA’s Open Positions Ratio

USD/JPY ratio is almost unchanged in Monday trade. This is consistent with the lack of movement we’re seeing from the pair. The ratio is made up of a large majority of long positions, indicating strong trader bias towards the dollar moving to higher levels.

USD/JPY Fundamentals

• 5:00 Japanese Housing Starts. Estimate -10.1%. Actual -15.0%.
• 13:45 US Chicago PMI. Estimate 63.2 points.
• 14:00 US Pending Home Sales. Estimate 1.4%.

*Key releases are highlighted in bold

*All release times are GMT

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.