USD/JPY – US Dollar Punches Past 118

The yen has posted small gains on Wednesday, as USD/JPY trades just above the 118 line at the start of the North American session. On the release front, today’s highlight is Crude Oil Inventories. Japan will release Core Machinery Orders and PPI.

The New Year started in superb fashion for the yen, which gained close to 300 points last week. Investors snapped up the safe-haven yen throughout last week, in response to weak Chinese data and tensions in the Middle East and North Korea. In addition, a surprise devaluation of the Chinese yuan weakened minor currencies and bolstered the safe-haven yen. These events propelled the Japanese yen to its highest levels against the greenback since August. However, the US dollar has rebounded somewhat, as USD/JPY is back above the 118 line. The reality of fundamentals could see the yen retract further, as the Japanese economy has struggled due to decreased demand on the global and domestic fronts. The Bank of Japan has been reluctant to increase monetary easing, but may have to make a move early in 2016, which would likely weaken the yen.

In the US, employment numbers continue to shine, courtesy of a robust labor market. The December NFP report surged to 292 thousand, crushing the estimate of 203 thousand. This was the strongest reading in 10 months. The unemployment rate remained unchanged at 5.0%, within the Federal Reserve’s definition of “full employment”. One area of concern in the employment picture is that of wage growth, which has not kept up with the strong improvement in payrolls. Even if technically the US is at “full employment”, there still remains slack in the labor market, meaning that employers aren’t feeling any pressure to raise wages. This was underscored by Average Hourly Earnings in December, which posted a flat reading of 0.0%, short of the forecast of 0.2%. This key event is a leading indicator of consumer inflation, meaning that wages must increase before consumers will spend more, thus leading to more inflation. The Fed has hinted that the December rate is the first of a series of incremental moves in 2016, and inflation levels will play an important role in any decision to raise rates.

Wednesday (Jan. 13)

• 10:30 US Crude Oil Inventories. Estimate 1.9M
• 13:01 US 10-year Bond Auction
• 14:00 US Beige Book
• 14:00 US Federal Budget Balance. Estimate -2.7B
• 18:50 Japanese Core Machinery Orders. Estimate -7.3%
• 18:50 Japanese PPI. Estimate -0.4%

Upcoming Key Events

Thursday (Jan. 14)

• 8:30 US Unemployment Claims. Estimate 275K

*Key releases are highlighted in bold

*All release times are EST

USD/JPY for Wednesday, January 13, 2016

USD/JPY January 13 at 8:20 GMT

Open: 117.83 Low: 117.77 High: 118.37 Close: 118.12

USD/JPY Technical

• USD/JPY posted gains in the Asian session and has leveled off in European trade
• 116.88 has strengthened in support as the pair trades at higher levels
• 118.53 is a weak resistance line
• Current range: 116.88 to 118.53

Further levels in both directions:

• Below: 116.88, 115.45 and 113.23
• Above: 118.53, 119.58 and 120.40

OANDA’s Open Positions Ratio

USD/JPY ratio remains unchanged, reflecting the lack of movement which has characterized the pair since late last week. Long positions continue to command a solid majority (66%), which is indicative of strong trader bias towards the pair continuing to move 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.