The Japanese yen is steady on Tuesday, as USD/JPY trades at 118.50 in the North American session. On the release front, Japanese inflation numbers were positive, as the Services Producer Price Index beat the estimate with a gain of 0.4%. In the US, CB Consumer Confidence improved to 98.1 points, above expectations.
Despite last week’s gains by USD/JPY, the Japanese currency has posted strong gains in the month of January, climbing close to 200 points. The yen has benefited from the plunge in oil prices and the Chinese slowdown, which has seen Chinese stock markets slide and Chinese GDP dip lower. Jittery investors have dumped risk assets and scurried to safe-haven assets like the yen. Still, fundamentals do not paint a pretty picture of the Japanese economy, which continues to be hampered by weak growth and low inflation levels. Last week, BoJ Governor Haruhiko Kuroda participated at the World Economic Forum in Davos, Switzerland. Taking a page out of ECB President Mario Draghi’s book, Kuroda said that the BoJ would step in with further monetary easing if necessary. The markets will be closely monitoring the BoJ policy statement on Thursday, as additional easing steps will likely push the yen to lower levels.
Market focus will shift to the Federal Reserve on Wednesday, as the Fed concludes a two-day meeting and issues a policy statement. It’s unlikely that the Fed will raise interest rates, which currently stand at 0.25%. Economic conditions have changed significantly since the Fed raise rates in mid-December, with global stock markets and oil prices sharply lower since the historic rate hike in December. According to Morgan Stanley Morgan chief economist Ellen Zentner, financial conditions have tightened by the equivalent of four rate hikes, so the Fed may opt to hold off from further tightening for the near future. We can expect the Fed to perform a balancing act in the upcoming statement, acknowledging weaker economic conditions while emphasizing that the economy continues to grow. The collapse of oil prices has contributed to the weak inflation picture, with current inflation levels well below the Fed target of 2.0%. Traders should be prepared for possible volatility following the upcoming policy statement.
Monday (Jan. 25)
- 18:50 Japanese Services Producer Price Index. Estimate 0.2%. Actual 0.4%
Upcoming Key Events
Tuesday (Jan. 26)
- 9:00 US HPI. Estimate 0.4%. Actual 0.5%
- 9:00 S&P/CS Composite-20 HPI. Estimate 5.7%. Actual 5.8%
- 9:45 US Flash Services PMI. Estimate 53.9 points. Actual 53.7 points
- 10:00 US CB Consumer Confidence. Estimate 96.6 points. Actual 98.1 points
- 10:00 US Richmond Manufacturing Index. Estimate 3 points. Actual 3 points
Wednesday (Jan. 27)
- 14:00 FOMC Statement
- 14:00 Federal Funds Rate. Estimate <0.50%
*Key releases are highlighted in bold
*All release times are EST
USD/JPY for Tuesday, January 26, 2016
USD/JPY January 26 at 10:15 EST
Open: 118.23 Low: 117.65 High: 118.61 Close: 118.50
- USD/JPY posted losses in the Asian session but reversed directions and has posted gains in European trade
- 116.88 is providing strong support
- 118.53 is under strong pressure as a resistance line and could break during the North American session
- Current range: 116.88 to 118.53
Further levels in both directions:
- Below: 116.88, 115.45, 113.23 and 112.48
- Above: 118.53, 119.58 and 120.40
OANDA’s Open Positions Ratio
USD/JPY ratio is showing little change, consistent with the lack of movement from the pair. Long positions continue to command a solid majority (60%), which is indicative of strong trader bias towards the pair continuing to move higher.