USD/JPY – Yen Unchanged Ahead of Japanese Inflation, Tankan Reports

USD/JPY is unchanged on Thursday, following the lack of movement which marked the Wednesday session. The pair is trading just shy of the 103 level. On the release front, it’s a busy day. Japanese Housing Starts posted a strong gain of 9.8 percent, well above expectations. Later in the day, Japan releases Tokyo Core CPI and the key Tankan indices. Over in the US, Unemployment Claims, today’s highlight, is expected to rise to 267 thousand. On Friday, the US releases the ISM Manufacturing PMI.

The Japanese consumer continues to hold tightly to her purse strings, as underscored by the Retail Sales report in May. The key indicator has managed only one gain since August 2015, and the decline of 1.9% in May was the sharpest decline in over a year. The safe-haven yen has benefited from the tremendous uncertainty and instability caused by the Brexit referendum vote last week. The currency briefly broke below the 100 level on Friday, much to the consternation of the Bank of Japan, as the strengthening yen is hurting the fragile Japanese economy. However, USD/JPY has since stabilized as the markets begin to digest the Brexit vote.

Brexit has ushered in a period of instability and uncertainty across the continent, with Brexit seemingly the only certainty one can point to. The vote to leave the EU is causing deep instability in Europe and the UK and wiped out a staggering $3 trillion from global stock markets. As the dust has begun to settle, the financial markets have stabilized. The pound plunged as much as 11 percent in the aftermath of the vote but has stabilized in the past few days. Still, political leaders on both sides of the Channel will have to pick up the pieces and deal with the radical new landscape, which was unthinkable just a few months ago – that of a European Union without Britain. The Chancellor of the Exchequer George Osborne and Bank of England Governor Mark Charney have sought to reassure the markets and the public that the situation is under control, but is it? The political picture is fluid, as the Conservatives are looking for a new leader, the Labor Party is in turmoil and general elections are likely later in the year. On the financial front, the pound and the markets have taken a beating and London’s position as a world financial center has been shaken. The uncertainty is not going to disappear anytime soon, so traders can expect further volatility in the currency markets.

British Prime Minister Cameron, a staunch supporter of the EU, finds himself in the unenviable position of explaining the Brexit decision to fuming Europeans. Cameron arrived in Brussels for an EU Summit on Tuesday and the meeting was fraught with tension, dismay and anger. Clearly, the “divorce of the “century” between Britain and the EU could be rancorous and messy. Cameron has asked for time to prepare Britain’s exit and wants to renew “productive” relations with Europe. However, the Europeans are in no mood for hugs and kisses on both cheeks. German Chancellor Merkel said that the UK could not “cherry pick” and that a relationship with Europe entailed obligations and not just rights – in other words, the Europeans are rejecting “half membership”. As well, Europe wants Britain to exit as soon as possible, in order to minimize the uncertainty and instability caused by the Brexit vote. French President Hollande went on the attack, saying that London should no longer remain a center for clearing euro trades. This market is worth trillions of euros in currency and derivative deals and such a move would be a severe blow to London’s financial sector. Already, the European Banking Authority has announced it is leaving London and moving to Paris or Frankfurt.  In a strictly legal sense, Britain is still a member of the EU club, but politically, it is out (British EU Commissioner Jonathan Hill resigned after the Brexit vote). The markets are allergic to uncertainty, so Britain’s unclear status within the EU could unnerve the markets and  bolster the safe-haven Japanese yen.

USD/JPY Fundamentals

Thursday (June 30)

• 1:06 Japanese Housing Starts. Estimate 4.9%. Actual 9.8%
• 8:30 US Unemployment Claims. Estimate 267K
• 9:45 US Chicago PMI. Estimate 50.6
• 10:30 US Natural Gas Storage. Estimate 48B
• 13:30 US FOMC James Bullard Speaks
• 8:30 US Unemployment Claims. Estimate 267K
• 19:30 US Household Spending. Estimate -1.3%
• 19:30 Tokyo Core CPI. Estimate -0.5%
• 19:30 Japanese National Core CPI. Estimate -0.4%
• 19:30 Japanese Unemployment Rate. Estimate 3.2%
• 19:50 Japanese Tankan Manufacturing Index. Estimate 4 points
• 19:50 Japanese Tankan Non-Manufacturing Index. Estimate 19 points
• 22:00 Japanese Final Manufacturing PMI. Estimate 47.9 points

Upcoming Key Events

Friday (July 1)

• 14:00 US ISM Manufacturing PMI. Estimate 51.3

*Key events are in bold

*All release times are EDT

USD/JPY for Thursday, June 30, 2016

USD/JPY June 30 at 6:30 EDT

Open: 102.79 Low: 102.43  High: 102.90 Close: 102.90

USD/JPY Technical

• USD/JPY posted small losses in the Asian session and has recovered in the European session
• 103.73 is a strong resistance line
• 102.36 is providing support
• Current range: 102.36 to 103.73

Further levels in both directions:

• Below: 102.36, 101.07, 99.71 and 98.88
•  Above: 103.73, 104.99 and 105.87

OANDA’s Open Positions Ratio

The USD/JPY ratio is showing limited movement on Thursday, consistent with the lack of movement from USD/JPY. Long positions have a strong majority (69%), indicative of trader bias towards USD/JPY breaking out 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.