USD/JPY – Yen Slightly Lower, US GDP Next

USD/JPY has posted slight gains on Tuesday, reversing the losses recorded in the Monday session. The pair is trading slightly above the 102 level. On the release front, the US will release two key indicators – Final GDP and CB Consumer Confidence. Japan will release Retail Sales, a key consumer spending indicator.

The safe-haven yen has benefited from the tremendous uncertainty and instability caused by the EU 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. Senior Japanese officials have warned that Japan will intervene against what it considers currency manipulations, and this threat was reiterated on Tuesday by a key advisor to Prime Minister Shinzo Abe. Koiche Hamada said that Japan had the right to intervene if the yen showed “extreme exchange rate fluctuations”. However, the US is staunchly against any such unilateral moves, so Japan risks a flare-up with the US if it takes such action.

With the aftershocks of the Brexit vote continuing to reverberate in the Britain and Europe, political leaders must now 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 historic decision raises many questions and has resulted in political and financial instability in Europe and the UK, and wiped out a staggering $3 trillion from global stock markets. The British pound has tumbled about 11 percent since the vote, and other currencies and gold have also recorded sharp volatility. 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, with Prime Minister Cameron resigning, the Labor Party in turmoil, and general elections 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 should be prepared for further volatility in the currency markets.

British Prime Minister Cameron is meeting with his EU colleagues in Brussels for a 2-day summit, and already there are signs that this divorce between Britain and the EU could be rancorous and messy. Cameron said on Monday that his successor would be the one to initiate the exit mechanism, and other British politicians have said there is no rush to leave. However, European lawmakers, furious with the decision, have called on Britain to leave as soon as possible. Britain may have voted “Leave”, but clearly the timing and the type of exit plan remain unclear. The future framework of political and economic relations between the UK and the continent will have to be negotiated, and we will see plenty of uncertainty and perhaps fireworks in the coming months.

Overshadowed by Brexit, the US wrapped up last week with soft manufacturing and consumer confidence numbers. Core Durable Goods Orders came in at -0.3%, marking the third decline in the past four months. This figure was well short of the forecast of +0.1%. There was no relief from Durable Goods Orders, which posted a sharp drop of 2.2%, compared to forecast of a 0.5% decline. The UoM Consumer Sentiment report also missed expectations, with a reading of 93.5 points. The markets had expected a reading of 94.2 points. Next up is Final GDP later on Tuesday, and the strength of the release could have major implications regarding a rate move during the second half of 2016.

USD/JPY Fundamentals

Tuesday (June 28)

  • 8:30 US Final GDP. Estimate 1.0%
  • 19:00 US S&P/CS Composite-20 HPI. Estimate 5.5%
  • 10:00 US CB Consumer Confidence. Estimate 93.2
  • 10:00 US Richmond Manufacturing Index. Estimate 2 points
  • 19:00 FOMC Member Jerome Powell Speaks
  • 19:50 Japanese Retail Sales. Estimate -1.6%

*Key events are in bold

*All release times are EDT

USD/JPY for Tuesday, June 28, 2016

USD/JPY June 28 at 6:15 EDT

Open: 101.80 Low: 101.54  High: 102.42 Close: 102.31

USD/JPY Technical

S3 S2 S1 R1 R2 R3
0.9888 0.9971 101.07 102.36 103.73 104.99
  • USD/JPY has shown limited movement in the Asian and European sessions, continuing the trend we have seen all week
  • 101.07 is providing support
  • 102.36 was tested earlier in resistance and is fluid. It could see further action during the day
  • Current range: 101.07 to 102.36

Further levels in both directions:

  • Below: 101.07, 0.9971 and 0.9888
  •  Above: 102.36, 103.73, 104.99 and 105.87

OANDA’s Open Positions Ratio

The USD/JPY ratio is unchanged on Tuesday, consistent with the lack of movement from USD/JPY. Long positions have a strong majority (70%), indicative of trader bias towards USD/JPY 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.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.