The Japanese yen has posted gains on Tuesday, as USD/JPY trades at 113.80 in the European session. On the release front, there are no key releases on the calendar. We’ll get a look at manufacturing data from both the US and Japan, as the US releases the Empire State Manufacturing Index, while Japan publishes Core Machinery Orders.
The Japanese yen has enjoyed a spectacular February run, gaining a remarkable 750 points against the US dollar. The yen has managed to shrug off weak Japanese fundamentals, such as this week’s Preliminary Japanese GDP for Q4, which came in at a disappointing -0.4%. This followed a decline of 0.2% in Final GDP for Q3. The Chinese slowdown has hurt the Japanese economy, as China is one of Japan’s major trading partners. To make matters worse, Japanese consumer spending has fallen off and the housing and manufacturing sectors are in poor shape as a result. Despite all the gloom and doom, the Japanese yen has not only held its own against the strong US dollar, but posted a superb rally. The secret to the yen’s recent success? The Japanese currency has benefited from its traditional safe-haven status, as global financial instability has driven investors away from risk assets towards safer waters like the yen. However, the recent stampede to safety will not last indefinitely, and the recent shock move by the BOJ of adopting negative rates underscores the lack of growth afflicting the Japanese economy.
The Federal Reserve was on center stage last week, as Janet Yellen testified before Congress, and her message was markedly different than the upbeat statement from the Fed back in the heady days of December. At that time, the Fed raised rates by 0.25%, the first upward move in a decade, and hinted at a series of rate hikes in 2016. Fast forward to February appearance before Congress, where Yellen refused to rule out negative interest rates. The Fed has rejected making such a move in the past, and this is unlikely to change. Still, Negative Interest Rate Policies (NIRP) has become a relevant tool for central banks. The Bank of Japan shocked the markets in January when it adopted negative rates, and the ECB has had this policy in place for some time on deposits, and has hinted that it could adopt this scheme to its benchmark rate, which is currently at 0.05%. Such a scheme is supposed to combat deflation and boost economic growth by pressuring banks to increase lending. In her testimony, Yellen noted that inflation rates in the US have remained very low due to the strong dollar and weak oil prices. Given the current economic situation, many experts expect no more than two rate hikes this year, perhaps in June and December. At the same time, any improvement in key US numbers will heat up speculation about a possible March hike.
Tuesday (Feb. 16)
- 8:30 US Empire State Manufacturing Index. Estimate -10.5 points
- 10:00 US NAHB Housing Market Index. Estimate 60 points
- 16:00 US TIC Long-Term Purchases
- 18:50 Japan Core Machinery Orders. Estimate 4.6%
- 19:30 US FOMC Member Eric Rosengren Speaks
Upcoming Key Events
Wednesday (Feb. 17)
- 8:30 US Building Permits. Estimate 1.21M
- 8:30 US PPI. Estimate -0.2%
- 14:00 FOMC Meeting Minutes
*Key releases are highlighted in bold
*All release times are EST
USD/JPY for Tuesday, February 16, 2016
USD/JPY February 16 at 5:45 EST
Open: 114.36 Low: 113.74 High: 114.88 Close: 113.77
- 113.86 is a weak resistance line
- 112.48 is providing support
- Current range: 112.48 to 113.86
Further levels in both directions:
- Below: 112.48, 111.50 and 109.87
- Above: 113.86, 114.65, 115.90 and 116.88
OANDA’s Open Positions Ratio
USD/JPY ratio is showing strong movement towards short positions. Still, long positions retain a strong majority (60%). This is indicative of strong trader bias towards the pair reversing directions and moving to higher ground.