USD/JPY – Yen Unchanged, Shrugs Off Soft Retail Sales

USD/JPY is unchanged on Wednesday, following gains which marked the Tuesday session. The pair is trading at 102.70. On the release front, Japanese Retail Sales posted a sharp decline of 1.9%, missing the estimate. Later in the day, Japan publishes Preliminary Industrial Production. It’s a busy day in the US, highlighted by Pending Home Sales. After a sharp gain in April, the estimate for May stands at -0.9%. On Thursday, the US releases Unemployment Claims while Japan publishes Tokyo Core CPI.

The Japanese consumer continues to hold tightly to her purse strings, as underscored by the Retail Sales report in May. The key indicator has managed only one gain since August 2015, and the decline of 1.9% in May was the sharpest decline in over a year. The safe-haven yen has benefited from the tremendous uncertainty and instability caused by the Brexit 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.

In the US, GDP was revised upwards in the first quarter. Final GDP for the first quarter posted a gain of 1.1%, above the estimate of 1.0%. This reading was stronger than the Preliminary GDP reading of 0.8%. Although the upward revision was welcome news, the revised GDP report marked the weakest gain in a year. On the consumer front, CB Consumer Confidence impressed by climbing to 98.0 points, easily beating the forecast of 93.2 points. Is US consumer confidence strengthening? It’s not clear, as last week’s UoM Consumer Sentiment report dropped to 93.4 points and missed expectations. Consumer confidence is closely linked to consumer spending, and we’ll get a look at Personal Spending later on Wednesday.

The aftershocks of the Brexit vote continuing to reverberate in the Britain and Europe, but the dust has begun to settle, as markets have stabilized and the British pound is steady. Political leaders on both sides of the Channel will have to 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 vote to leave the EU, which stunned the markets and the public, has caused deep instability in Europe and the UK and wiped out a staggering $3 trillion from global stock markets. The currency and commodity markets have been volatile, as the pound and plunged, while gold has surged higher. 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, as the Conservatives must choose a new leader, the Labor Party is in turmoil and general elections are 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 can expect further volatility in the currency markets.

British Prime Minister Cameron, a staunch supporter of the EU, finds himself in the unenviable position of explaining the Brexit decision to fuming Europeans. Cameron arrived in Brussels for an EU Summit on Tuesday and the meeting was fraught with tension, dismay and anger. Clearly, the “divorce of the “century” between Britain and the EU could be rancorous and messy. Cameron has asked for time to prepare Britain’s exit and wants to renew “productive” relations with Europe. However, the Europeans are in no mood for hugs and kisses on both cheeks. German Chancellor Merkel said that the UK could not “cherry pick” and that a relationship with Europe entailed obligations and not just rights – in other words, the Europeans are rejecting “half membership”. As well, Europe wants Britain to exit as soon as possible, in order to minimize the uncertainty and instability caused by the Brexit vote. French President Hollande went on the attack, saying that London should no longer remain a center for clearing euro trades. This market is worth trillions of euros in currency and derivative deals and such a move would be a severe blow to London’s financial sector. Already, the European Banking Authority has announced it is leaving London and moving to Paris or Frankfurt.

USD/JPY Fundamentals

Tuesday (June 28)

• 19:50 Japanese Retail Sales. Estimate -1.6%. Actual -1.9%

Wednesday (June 29)

• 8:30 US Core PCE Price Index. Estimate 0.2%
• 8:30 US Personal Spending. Estimate 0.4%
• 8:30 US Personal Income. Estimate 0.3%
• 10:00 US Pending Home Sales. Estimate -0.9%
• 10:30 US Crude Oil Inventories. Estimate -2.3M
• 16:30 US Bank Stress Test Results
• 19:50 Japanese Preliminary Industrial Production. Estimate -0.1%

Upcoming Key Events

Thursday (June 30)

• 12:30 US Unemployment Claims. Estimate 267K
• 19:30 Tokyo Core CPI. Estimate -0.5%

*Key events are in bold

*All release times are EDT

USD/JPY for Wednesday, June 29, 2016

USD/JPY June 29 at 6:30 EDT

Open: 102.70 Low: 102.15  High: 102.70 Close: 102.68

USD/JPY Technical

• USD/JPY has been flat in the Asian and European sessions
• 103.73 is a strong resistance line
• 102.36 is fluid and is a weak support level.
• Current range: 102.36 to 103.73

Further levels in both directions:

• Below: 102.36, 101.07, 99.71 and 98.88
•  Above: 103.73, 104.99 and 105.87

OANDA’s Open Positions Ratio

The USD/JPY ratio is showing limited movement on Wednesday, consistent with the lack of movement from USD/JPY. Long positions have a strong majority (67%), indicative of trader bias towards USD/JPY breaking out and moving 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.