USD/JPY has bounced back with gains on Tuesday, following losses on the Monday session. Currently, the pair is trading at 102.30. On the release front, Japanese BSI Manufacturing Index improved to 2.9 points, crushing the estimate of -6.5 points. It’s another quiet day in the US, with no major releases on the schedule.
Japanese manufacturing indicators continue to impress this week. On Monday, BSI Manufacturing Index broke a nasty streak of two sharp declines. This reading comes on the heels of Core Machinery Orders, which jumped 4.9%, well above expectations. Preliminary Machine Tool Orders declined 8.4%, but this was markedly better than the previous reading of -19.6%. The Bank of Japan will release a monetary statement next Wednesday, just a day before the Fed releases its statement. The bank cut rates into negative territory earlier in the year, but has had little success in coaxing inflation to higher levels. Will the BoJ adopt further easing measures? If the bank does take action, deeper rate cuts or expanding the asset-purchase scheme (or some combination) are the most likely routes. In addition to its standard rate announcement, the BoJ has said it will also conduct a “comprehensive review” of its policy at the September meeting. What this entails is not clear, as the BoJ has not conducted such a review in the past.
With no major US releases until Thursday, the markets have been paying even closer attention to recent comments from Federal Reserve policymakers. On Monday, FOMC member Lael Brainard sounded cautious, saying it would be prudent to maintain a loose monetary policy. Brainard noted global uncertainties and weak inflation as reasons for the Fed not to rush into raising rates. This dovish message was in marked contrast to remarks from FOMC member Eric Rosengren on Friday, who came out in support of a rate hike, without providing a timeline. Rosengren said that “tightening is likely to be appropriate”, and went as far as to say that the US economy could overheat if the Fed didn’t act soon. These mixed messages certainly haven’t clarified matters, leaving markets players in the dark as to the Fed’s monetary plans. However, they have led to plenty of movement in the odds of a rate hike, which moved higher after Rosengren’s speech, only to drop following Brainard’s comments. The likelihood of a September hike has dipped to 15%, while the odds of a December rate hike are down to 45%. The markets will have few fundamental cues to work with until Thursday and Friday, when the US will release retail sales, CPI and consumer confidence numbers. If these numbers are stronger than expected, the odds of a rate hike next week will move higher, and the dollar could make headway against its rivals.
Monday (September 12)
- 19:50 Japanese BSI Manufacturing Index. Estimate -6.5. Actual +2.9
Tuesday (September 13)
- 6:00 US NFIB Small Business Index. Estimate 94.9. Actual 94.4
- 13:01 US 30-year Bond Auction
- 14:00 US Federal Budget Balance. Estimate -98.0B
*All release times are EDT
*Key events are in bold
USD/JPY for Tuesday, September 13, 2016
USD/JPY September 13 at 7:50 EDT
Open: 101.74 High: 102.33 Low: 101.41 Close: 102.30
- USD/JPY posted slight losses in the Asian session and then recovered. The pair continues to post gains in European trade
- 102.36 is under strong pressure in resistance and could break during the Tuesday session
- 101.20 continues to provide strong support
- Current range: 101.20 to 102.36
Further levels in both directions:
- Below: 101.20, 100.55, 99.71 and 98.95
- Above: 102.36, 103.73, 104.99 and 106.38
OANDA’s Open Positions Ratio
USD/JPY ratio is unchanged on Tuesday. Currently, long positions have a substantial majority (66%), indicative of trader bias towards USD/JPY continuing to move higher.