USD/JPY – Yen Shrugs off Tepid Data, Edges Higher

The Japanese yen continues to improve against the retreating US dollar. The pair is trading in the mid-97 range in Wednesday’s European session. We have not seen the pair at such low levels since late June. On Tuesday, both US CB Consumer Confidence and Japan’s Manufacturing PMI fell short of their estimates. On Wednesday, Japanese Average Cash Earnings and Household Starts missed their forecasts. It’s a busy day over in the US, with three major releases on the schedule – ADP Non-Farm Employment Change, Advance GDP and the Federal Reserve’s FOMC Policy Statement.

The yen has enjoyed a strong rally against the US dollar, gaining close to 300 points in less than a week. Recent Japanese data has been lukewarm, but this hasn’t impeded the yen’s rise. On Wednesday, Japanese Housing Starts climbed from 14.5% to 15.3%, its best performance since October 2012. The markets had expected more, with an estimate of 15.9%. Average Cash Earnings edged up to 0.1%, shy of the estimate of 0.2%. Perhaps the markets are “cutting some slack” and focusing on the fact that some Japanese indicators, although they are falling short of their estimates, are nevertheless posting strong gains, indicative of an improving Japanese economy. This could help explain why the yen has had a strong week, despite some less than impressive releases out of Japan.

One of the cornerstones of the Japanese government’s economic policy, popularly referred to as Abenomics, has been a battle to eliminate deflation, which has hobbled the economy for some 15 years. It has taken quite a bit of time, but inflation indicators are finally pointing upwards. Last week, Tokyo Core CPI improved rose from 0.2% to 0.3%, matching the forecast. Not to be outdone, National Core CPI jumped from 0.0% to 0.4%, also matching the estimate. Another inflation release, Corporate Services Price Index, posted a gain of 0.4%. Although this fell short of the estimate, it did mark the indicator’s best reading in 2013. Stronger inflation would indicate increased spending and greater economic activity, which could bolster the weak Japanese yen.

Over in the US, consumer confidence numbers have looked solid. CB Consumer Confidence dropped from 81.4 to 80.3 points, but this is still a very strong release in comparison to the readings we saw earlier in 2013. Late last week, UoM Consumer Sentiment rose to 85.1 points, its highest level in six years. The magic question is will stronger levels of consumer confidence translate into increased borrowing and spending, which will help create jobs and bolster the recovery. We’ll have to wait and see if upcoming US releases follow suit and point higher.

USD/JPY for Wednesday, July 31, 2013

USD/JPY July 31 at 11:20 GMT

USD/JPY 97.69 H: 98.18 L: 97.58

USD/JPY Technical

USD/JPY continues to lose ground in Wednesday trading. The pair dropped below the 98 line late in Asian trade, and the downward tend continues. The pair is receiving support at 97.18. Given the yen’s impressive rally, this line cannot be considered safe. 96.20 is a stronger support level. It was last tested in mid-June.

On the upside, 97.83 is providing resistance. This is a weak line, and could face pressure from USD/JPY. This is followed by a stronger line at 98.43.

• Current range: 97.18 to 97.83

Further levels in both directions:

• Below: 97.18, 97.18, 96.20,95.60 and 94.58
• Above: 97.83, 98.43, 99.45, 100.00, 100.85 and 101.66

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged in Wednesday trading, continuing a trend we have seen throughout the week. This is not reflected in what we are currently seeing from the pair, as the yen has posted modest gains. Long positions continue to enjoy a sizeable majority of open positions, indicating that trader sentiment is biased in favor of a move upwards by USD/JPY.

The yen continues to roll and post gains against the dollar. Will the Japanese currency’s rally continue? With several major releases out of the US today, we can expect some volatility from USD/JPY later during the day.

USD/JPY Fundamentals

• 1:30 Japanese Average Cash Earnings. Estimate 0.2%. Actual 0.1%.
• 5:00 Japanese Housing Starts. Estimate 15.9%. Actual 15.3%.
• 12:15 US ADP Non-Farm Employment Change. Estimate 179K.
• 12:30 US Advance GDP. Estimate 1.1%.
• 12:30 US Advance GDP Price Index. Estimate 1.1%.
• 12:30 US Employment Cost Index. Estimate 0.4%.
• 13:45 US Chicago PMI. Estimate 53.7 points.
• 14:30 US Crude Oil Inventories. Estimate -21.M.
• 18:00 US FOMC Statement.
• 18:00 US Federal Funds Rate. Estimate <0.25%.

*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.