USD/JPY – Yen Takes Breather from Rally, Markets Eye US Services, Job Reports

The Japanese yen has ticked higher on Wednesday, following strong gains on the Tuesday session. USD/JPY is currently trading at 101.20. On the release front, there are no Japanese events on the schedule. The US will release two indicators – ADP Nonfarm Employment Change and US ISM Non-Manufacturing PMI.

Japanese Prime Minister Shinzo Abe announced a JPY 28 trillion stimulus plan last week. The plan was approved by the cabinet on Tuesday, and will include JPY 13.5 trillion of fiscal measures, with new spending to commence this year. Will this be enough to kick-start the languishing economy? It will be a tough task to convince the Japanese consumer, who remains deeply pessimistic and will be reluctant to loosen the purse strings. The government isn’t getting any help from the Bank of Japan, which has refrained from utilizing its major monetary tools – lowering interest rates or expanding its asset-purchase program. The yen has posted sharp gains due to the bank’s tentativeness to adopt further easing measures, as the dollar fell below 101 yen on Wednesday. Meanwhile, Japanese finance officials appear glued to their forex screens, sending out nervous messages every time the yen gains ground. This was the case again on Tuesday, as Japanese Finance Minister Taro Aso said he was concerned about “extremely nervous moves” from the currency markets and that the government would continue to monitor currency movements.

The Japanese currency has also taken advantage of an unexpectedly soft US GDP report. Preliminary GDP for the second quarter was projected at 2.6%, but posted a much smaller gain of 1.2%. The soft reading not only pushed the dollar lower, but has dampened enthusiasm regarding a rate hike by the Federal Reserve, which last week stayed on the sidelines yet again. On Monday, FOMC William Dudley, a close ally of Janet Yellen, said that the Brexit fallout posed a risk to the US economy and urged the Fed to proceed with caution before raising interest rates. The US will release wage growth and nonfarm payrolls later in the week, and these key employment numbers will be carefully monitored by the Fed as it mulls over a possible rate hike. The markets have circled September and December as the most likely dates for a rate hike, but if the Fed isn’t satisfied with the economy’s performance, it could delay any moves until 2017.

USD/JPY Fundamentals

Tuesday (August 2)

• 19:50 BoJ Monetary Policy Meeting Minutes

Wednesday (August 3)

• 8:15 US ADP Nonfarm Employment Change. Estimate 171K
• 9:45 US Final Services PMI. Estimate 51.0
• 10:00 US ISM Non-Manufacturing PMI. Estimate 56.0
• 10:30 US Crude Oil Inventories. Estimate -1.6M

Upcoming Key Events

Thursday (August 4)

• 12:30 US Unemployment Claims. Estimate 265K

*Key events are in bold

*All release times are EDT

USD/JPY for Wednesday, August 3, 2016

USD/JPY August 3 at 6:20 EDT

Open: 101.07 High: 101.34  Low: 100.73 Close: 101.24

USD/JPY Technical

• USD/JPY has shown little movement in the Asian and European sessions
• 101.20 was tested earlier in support and is a weak line. It could break in the Wednesday session
• 102.36 is a strong resistance line
• Current range: 101.20 to 102.36

Further levels in both directions:

• Below: 101.20, 99.71 and 0.9895
•  Above: 102.36, 103.73, 104.99 and 105.87

OANDA’s Open Positions Ratio

The USD/JPY ratio has shown gains in long positions. Currently, long positions have a majority (69%), indicative of trader bias towards USD/JPY breaking out and 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.