USD/JPY – Yen Edges Higher, Markets Eye US Housing Numbers

The Japanese yen is up slightly on Friday, following sharp gains in the Thursday session. The pair is trading at 104.30. On the release front, it’s a quiet day as we wrap up the trading week. In the US, today’s key event is Building Permits, with the markets expecting the indicator to improve to 1.15 million. As well, Housing Starts will also be released. There are no Japanese releases on Friday.

US inflation and employment numbers were soft on Thursday. Core CPI and CPI, the primary gauges of consumer inflation, both posted small gains of 0.2%, within expectations. The Federal Reserve continues to insist that inflation will head towards its target of 2.0 percent, but given current inflation levels are not much above zero, it’s hard to see this happening, absent a huge surge by the US economy. Meanwhile, Unemployment Claims increased to 277 thousand, above the estimate of 267 thousand. This marked a four-week high, and once again raises questions about the strength of the US labor market. The employment picture appeared to be very bright in early 2016, but the Nonfarm Payrolls report of just 38 thousand in May shocked the markets and could delay a rate hike by the Federal Reserve.

There were no surprises from the Federal Reserve at the conclusion of its policy meeting on Wednesday. The Fed opted for the sidelines, maintaining the benchmark rate at 0.25%, where it has been pegged since December 2015. A dismal Nonfarm Payrolls report and dovish statements from Fed chair Janet Yellen and her colleagues had all but decimated any chance of a June hike. Back in April, Fed chair Janet Yellen had renewed hopes of rate hike in the summer, when she said that she expected a rate hike in “the coming months”. The Fed’s tone has drastically changed since then, and there is a strong likelihood that the Fed will raise rates only once in 2016. The Fed statement did not shed any light on the timing of a rate hike, although many analysts are circling September in their calendars. The statement was cautious in tone, stating that the Fed expects US inflation levels to remain at low levels in the near term. As well, the Fed lowered its rate path outlook for 2016 and 2017. Gone are the heady days in December, when the Fed hinted that it could raise rates up to four times in 2016. Many analysts were skeptical about this rosy prediction, and it appears that the Fed was overly optimistic about the strength of the US economy. This “lack of sync” between the Fed and the markets regarding the US economy could hurt the credibility of the Fed, although to her credit, Yellen has made strong efforts to communicate clearly with the markets, in sharp contrast to the undecipherable “Fedspeak”, perfected by former Fed chair Allan Greenspan.

USD/JPY Fundamentals

•  12:30 US Building Permits. Estimate 1.15M
• 12:30 US Housing Starts. Estimate 1.15M

*Key events are in bold

*All release times are EDT

USD/JPY for Friday, June 17, 2016

USD/JPY June 17 at 5:35 EDT

Open: 104.77 Low: 104.04  High: 104.83 Close: 104.32

USD/JPY Technical

• USD/JPY posted small losses in the Asian session and is flat in European trade
• 103.73 is providing weak support
• There is resistance at 104.99
• Current range: 103.73 to 104.99

Further levels in both directions:

• Below: 103.73, 102.36 and 101.07
•  Above: 104.99, 105.87 and 107.16

OANDA’s Open Positions Ratio

The USD/JPY ratio is showing little movement on Friday. Long positions have a strong majority (67%), indicative of trader bias towards USD/JPY reversing directions and 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.