USD/JPY – Sizzling Yen Moves Below 106

USD/JPY has posted gains on Tuesday, as the pair trades just below the 106 line early in the North American session. On the release front, it’s a quiet day, with no major events in the US. There are no Japanese releases on the schedule, as the markets remained closed for a holiday. We’ll get a look at two key US indicators on Wednesday – ADP Nonfarm Employment Change and the ISM Non-Manufacturing PMI.

The Japanese markets are closed for most of this week, but that hasn’t prevented the yen from continuing to move higher against the retreating US dollar. The yen has surged 550 points in less than a week, and has dropped below the 106 line on Tuesday. USD/JPY is currently trading at its lowest level since October 2014. The Japanese currency continues to extend gains following the BoJ’s surprise decision last week to hold off from further easing. The BoJ left unchanged its 80 trillion yen target for expanding the monetary base and the 0.1% negative rate on some bank funds held by the central bank. The BoJ also postponed its time frame for its target of 2 percent inflation until 2017. In remaining on the sidelines, the BoJ sent a strong message that it won’t be rushed into more monetary action and any further easing will be data-dependent. The BoJ remains concerned about the strengthening yen, but may have concluded that there is little it can do to stop the currency from continuing to fly, as the symbolic 100 level looms closer. The yen last traded below 100 in November 2013.

Manufacturing remains a sore spot in a generally strong US economy, as weak global demand for US-made goods has taken its toll on the industry. On Monday, US ISM Manufacturing PMI, a key gauge of manufacturing output, missed expectations. The index dipped to 50.8 points, shy of the estimate of 51.6 points. This reading just above the 50-point line points to near stagnation in the manufacturing sector. As well, Final Manufacturing PMI and Construction Prices both missed expectations, but ISM Manufacturing Prices easily beat the forecast. Last week, Core Durable Goods dropped 0.2%, well off the estimate of a 0.6% gain. This marked the fourth decline in five months. Durable Goods Orders was stronger at 0.8%, but also missed expectations, as the estimate stood at 1.9%.

The first quarter of 2016 has been marked by shaky global markets and a sharp drop in oil prices, so slower growth for the US economy was not unexpected. GDP climbed 0.5% in the first quarter, shy of the estimate of 0.7%. This was considerably lower than the 1.4% gain in the fourth quarter of 2015, and marked the weakest quarter of growth in two years. Although economic growth remains moderate, the lukewarm reading will not help the cause of Fed policymakers who favor a rate hike, especially with inflation at low levels. The markets, which had not expected any moves from the Fed in April, are keeping a close eye on key numbers and looking for clues as to whether the Fed will raise rates at its June policy meeting. The April policy statement sounded cautiously optimistic about the US economy, leaving the door open regarding a rate hike in June.

USD/JPY Fundamentals

Tuesday (May 3)

• 10:00 US IBD/TIPP Economic Optimism. Estimate 46.6
• 10:30 US FOMC Member Loretta Mester Speaks
• All Day – US Total Vehicle Sales. Estimate 17.3M

Upcoming Key Events

Wednesday (May 4)

• 8:15 US ADP Nonfarm Employment Change. Estimate 205K
• 10:00 US ISM Non-Manufacturing PMI. Estimate 54.9

*Key releases are highlighted in bold

*All release times are EDT

USD/JPY for Tuesday, May 3, 2016

USD/JPY May 3 at 9:20 EDT

Open: 106.41 Low: 105.55 High: 106.43 Close: 105.91

USD/JPY Technical

• USD/JPY has shown limited movement in the Asian and European sessions
• 106.19 was tested earlier in resistance and remains under pressure
• 105.18 is providing support
• Current range: 105.18 to 106.19

Further levels in both directions:

• Below: 105.18, 104.12 and 103.09
•  Above: 106.19, 107.57, 108.37 and 109.87

OANDA’s Open Positions Ratio

USD/JPY ratio is showing slight movement towards short positions on Tuesday. Long positions continue to command a strong majority (65%). This is indicative of strong trader bias towards USD/JPY reversing directions 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.