USD/JPY – Japanese Trade Deficit Jumps, Yen Stuck at 120

USD/JPY is trading quietly early in the North American session. The pair has made slow but steady gains since last week, when it was trading below the 119 line. In economic news, Japanese Trade Balance was a disappointment, as the deficit ballooned to JPY 0.36 trillion, much higher than estimates. Over in the US, Crude Oil Inventories impressed with a reading of 8.0 million, crushing the estimate of 2.5 million. As well, FOMC member Jerome Powell will speak at an event in New York. Traders should keep a close eye on Thursday’s key event – US Unemployment Claims.

Japan’s trade deficit widened in September to JPY 0.36 trillion, well above the estimate of JPY 0.07 trillion. The weak figure points to a drop in Japanese exports, and the country may be headed to a recession in the third quarter. This has raised speculation that the BOJ may implement additional stimulus. Further monetary easing by the BOJ would likely push the yen downwards.

China has overtaken Japan as the world’s second largest economy, so when the Asian giant publishes data, the markets listen closely. Chinese GDP dipped to 6.9% in Q3, down from 7.0% in the past two quarters. Still, the markets preferred to view the cup as half full, noting that the forecast called for a gain of 6.8%. In an effort to spur growth, the Chinese central bank has cut interest rates five times since November an increased spending. The effect that China is having on the global economy and markets cannot be emphasized enough, and the Federal Reserve recently pointed at slower Chinese growth as a key factor in deciding not to raise US interest rates. Meanwhile, Chinese Industrial Production slipped to 5.7% in September, short of the estimate of 6.0%.

The lack of strong US numbers has reduced the likelihood of a rate hike by the Federal Reserve before the end of 2016. So where does the Fed stand? The Fed hasn’t cleared the air, as FOMC members continue to send out contradictory messages about the Fed’s plans regarding a rate hike. Still, an improvement in US numbers, especially employment and consumer indicators, could quickly revive speculation about a rate hike and boost the US dollar against its major rivals. This means that the upcoming US Unemployment Claims report will be carefully monitored, and an unexpected reading could have a sharp impact on the direction of the US dollar. The estimate stands at 266 thousand, higher than the previous report of 255 thousand.

USD/JPY Fundamentals

Wednesday (Oct. 21)

• 14:30 US Crude Oil Inventories. Estimate 3.5M. Actual 8.0M.
• 17:30 FOMC Member Jerome Powell Speaks
• 4:30 Japanese All Industries Activity.

Upcoming Releases

Thursday (Oct. 22)

• 12:30 US Unemployment Claims. Estimate 266K.

USD/JPY for Wednesday, October 21, 2015

USD/JPY October 21 at 14:35 GMT

USD/JPY 119.95 H: 120.09 L: 119.79

USD/JPY Technical

• USD/JPY has shown very little movement on Wednesday.
• 118.53 is a strong support level.
• 120.40 is an immediate resistance line and could be tested in the North American session.
• Current range: 118.53 to 120.40

Further levels in both directions:

• Below: 118.53, 116.90, 115.90 and 113.86
• Above: 120.40, 121.50, 122.40 and 123.74

OANDA’s Open Positions Ratio

USD/JPY ratio is showing slight gains towards short positions on Wednesday. Long positions continue to command a solid majority of long positions (58%), indicative of trader bias towards the US dollar 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.