USD/JPY – Yen in Holding Pattern Ahead of Key US Data

USD/JPY is subdued on Friday, as the pair trades just below the 109 line in the European session. On the release front, Japanese Tertiary Activity came in at -0.7%, well below expectations. The US will release a host of key indicators, including inflation, retail sales and consumer confidence reports. We could see USD/JPY show some volatility around the publication time of these key US releases.

Will the BoJ make a monetary move this summer? Speculation has risen that the BoJ will adopt further easing measures in June or July. With the Japanese economy showing weak growth and the strong yen hurting exports, the BoJ is under strong pressure to adopt further easing measures. The BoJ has warned that it could intervene to curb the climb of the high-flying yen, but analysts say that the BoJ is unlikely to make any such moves until after the G7 meeting later in May, which is being hosted by Japan. Policymakers have tried to “talk down” the yen by warning that Japan will intervene in the currency markets, but this has not done much to push down the currency. Meanwhile, there was positive news as Japan’s current account surplus widened to 1.89 JPY trillion in March, just shy of the estimate of JPY 1.90 trillion. This was the highest surplus recorded since March 2015.

US employment numbers have shined for most of 2016, but recent releases have pointed in both directions, raising concerns that the labor market is showing signs of weakness. Unemployment Claims, which have been moving higher, surged last week, hitting 294 thousand. This was the highest weekly claims level since July 2015. On Tuesday, JOLT Job Openings looked sharp in April, jumping to 5.76 million. This figure was much stronger than the estimate of 5.56 million. However, last week’s host of employment numbers were a mix, which predictably has raised concerns about the strength of the US labor market. Last week, Nonfarm Payrolls looked awful, as the key indicator slid to just 160 thousand, well short of the forecast of 203 thousand. This marked the lowest reading in seven months. On a brighter note, wages showed growth, as Average Hourly Earnings posted a second straight gain of 0.3%.

With the Federal Reserve staying on the sidelines since the historic December hike, the markets are now focusing on the Fed’s next policy meeting in June. Will we see a rate hike for the first time this year? Last week’s soft Nonfarm Payrolls report took out the steam from recent speculation about a June move, but strong US numbers, particularly on the employment and inflation fronts, could quickly change market sentiment. We’ll get a look at Retail Sales, PPI and UoM Consumer Sentiment later on Friday, and these key numbers could play an important role in the Fed’s decision. The Fed will release the minutes of its April meeting next week, and the markets will be combing through the report, looking for hints about what the Fed has planned for this summer.

USD/JPY Fundamentals

Friday (May 13)

• 00:30 Japanese Tertiary Industry Activity. Estimate -0.2%. Actual -0.7%
• 8:30 US Core Retail Sales. Estimate 0.6%
• 8:30 US PPI. Estimate 0.3%
• 8:30 US Retail Sales. Estimate -0.3%
• 8:30 US Core PPI. Estimate 0.1%
• 10:00 US Preliminary UoM Consumer Sentiment. Estimate 89.9 points
• 10:00 US Business Inventories. Estimate 0.2%
• 10:00 US Revised UoM Inflation Expectations

*Key releases are highlighted in bold

*All release times are EDT

USD/JPY for Friday, May 13, 2016

USD/JPY May 13 at 7:15 EDT

Open: 109.08 Low: 108.52 High: 109.12 Close: 108.88

USD/JPY Technical

• USD/JPY posted small losses in the Asian session but has recovered in European trade
• 108.37 is providing support
• There is strong resistance at 109.87
• Current range: 108.37 to 109.87

Further levels in both directions:

• Below: 108.37, 107.57, 106.19, and 105.18
•  Above: 109.87, 110.66 and 111.30

OANDA’s Open Positions Ratio

USD/JPY ratio has shown movement towards short positions on Friday. Long positions continue to command a strong majority (58%). This is indicative of strong trader bias towards USD/JPY reversing directions and climbing 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.