USD/JPY – Yen Drifting, US Manufacturing Report Next

USD/JPY is showing limited movement on Monday, as the pair trades just below the 109 line in the European session. On the release front, Japanese PPI came in at -4.2%, missing the estimate of -3.7%. Preliminary Machine Tools posted a sharp decline of 26.4%. In the US, it’s a quiet start to the week, highlighted by the Empire State Manufacturing Index. The index is expected to climb 7.2 points. On Tuesday, the US releases CPI, while Japan will publish Preliminary GDP.

With the Japanese economy showing weak growth and the strong yen hurting exports, speculation has risen that the BoJ will adopt further easing measures in June or July. The BoJ has warned that it could intervene to curb the climb of the high-flying yen, but analysts say that the BoJ is unlikely to make any such moves until after the G7 meeting later in May, which is being hosted by Japan. Policymakers have tried to “talk down” the yen by warning that Japan will intervene in the currency markets, but tough talk is unlikely to have much effect on the currency. The BoJ took radical action and adopted negative rates earlier in the year, but this hasn’t translated into higher inflation levels. PPI, which measures inflation in the manufacturing sector, continues to post sharp declines, and the April reading of -4.2% was worse than expected.

The US wrapped up the week on a positive note, highlighted by solid retail sales and consumer confidence reports. Core Retail Sales posted a strong gain of 0.8%, above the estimate of 0.6%. Retail Sales surged 1.3%, its strongest gain in over six years. The gain was all the more impressive as the markets had anticipated a decline of 0.3%. Consumer confidence also looked sharp, as UoM Consumer Sentiment jumped to 95.8 points, compared to the estimate of 89.9 points. This was the indicator’s best showing since April 2015. On the inflation front, PPI posted a small gain of 0.2%, shy of the forecast of 0.3%. We’ll get a look at CPI reports on Tuesday. A rate hike remains on the table for June, but the Fed is unlikely to make a move if inflation numbers fail to improve. On Wednesday, the Fed will release the minutes of its April policy meeting. The markets will be combing through the report, looking for hints about what the Fed has planned for this summer.

USD/JPY Fundamentals

Sunday (May 15)

• 19:50 Japanese PPI. Estimate -3.7%. Actual -4.2%

Monday (May 16)

• 2:00 Japanese Preliminary Tool Orders. Actual -26.4%
• 8:30 US Empire State Manufacturing Index. Estimate 7.2
• 10:00 US NAHB Housing Market Index. Estimate 59
• 16:00 US TIC Long-Term Purchases. Estimate 36.5B

Upcoming Key Events

Tuesday (May 17)

• 8:30 US Building Permits. Estimate 1.13M
• 8:30 US CPI. Estimate 0.4%
• 8:30 US Core CPI. Estimate 0.2%
• 19:50 Japanese Preliminary GDP. Estimate 0.1%

*Key releases are highlighted in bold

*All release times are EDT

USD/JPY for Monday, May 16, 2016

USD/JPY May 16 at 6:40 EDT

Open: 109.08 Low: 108.52 High: 109.12 Close: 108.85

USD/JPY Technical

• USD/JPY has showed limited movement in the Asian and European sessions
• 108.37 is providing support
• There is strong resistance at 109.87
• Current range: 108.37 to 109.87

Further levels in both directions:

• Below: 108.37, 107.57, 106.19, and 105.18
•  Above: 109.87, 110.66 and 111.30

OANDA’s Open Positions Ratio

USD/JPY ratio is almost unchanged on Monday. Long positions continue to command a strong majority (59%). This is indicative of strong trader bias towards USD/JPY climbing 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.