USD/JPY has posted slight losses on Tuesday, as the pair trades at 101.80. On the release front, it’s another quiet day, so it could be an uneventful day for the yen. The US will release Building Permits and Housing Starts, with the markets expecting little change in the August reports. Japan will release trade balance numbers, with the surplus expected to jump to JPY 0.50 trillion. Traders should be prepared for volatility from USD/JPY on Wednesday, as the BoJ and Federal Reserve will set interest rates and release monetary policy statements.
Market focus has shifted to the central banks, as the Bank of Japan will set interest rates and release a policy statement late Tuesday, with the Federal Reserve following suit on Wednesday. The Bank of Japan embarked on an aggressive quantitative and qualitative easing scheme back in April 2013, with high hopes of kick-starting the economy and raising inflation levels. However, the results have been very disappointing. Inflation is closer to zero than the bank’s target of 2% and economic growth has sputtered. What can we expect from the BoJ this time around? Market players aren’t sure, as the bank appears divided on what action to take. The most likely scenarios are further negative interest rates or an expansion of the QE program. The BoJ could also opt to refrain from any moves for time being and use forward guidance to signal additional stimulus.
Janet Yellen delivered an upbeat speech back in August, and the predictable result was increased speculation about a rate hike as early as September. However, recent economic numbers have been mixed, so the Fed is widely expected to remain on the sidelines at the Wednesday meeting and revisit monetary policy in December. The markets have priced in a September hike at just 12 percent. Still, the Fed policy statement will be closely monitored by the markets, which will be looking for hints regarding a December move. If Janet Yellen delivers a dovish message, the market’s mood could sour and the dollar could lose ground. Recent comments from FOMC members, which have been almost contradictory at times, have left the markets confused and reinforced the perception that the Fed remains divided regarding its near-future monetary policy. With the markets expecting a rate hike in the near future, greater clarity from the Fed could contribute to market stability.
US consumer inflation numbers were slightly better than expected in August. CPI posted a gain of 0.2%, edging above the forecast of 0.1%. It was a similar story with Core CPI, which rose 0.3%, compared to the forecast of 0.2%. CPI was up from 0.0% in July, with the rise being attributed to higher shelter and health care costs. If inflation indicators continue to rise, there is a greater chance of a rate hike in December, and increased speculation about a Fed hike could push the greenback to higher levels.
Tuesday (September 20)
- 8:30 US Building Permits. Estimate 1.17M
- 8:30 US Housing Starts. Estimate 1.19M
- 19:50 Japanese Trade Balance. Estimate 0.50T
Wednesday (September 21)
- Tentative – BoJ Monetary Policy Statement
- Tentative – BoJ Press Conference
- 14:00 FOMC Economic Projections
- 14:00 FOMC Federal Funds Rate. Estimate <0.50%
- 14:30 FOMC Press Conference
*All release times are EDT
*Key events are in bold
USD/JPY for Tuesday, September 20, 2016
USD/JPY September 20 at 5:35 EDT
Open: 101.90 High: 102.06 Low: 101.51 Close: 101.77
- USD/JPY showed limited movement in the Asian session. In European trade, the pair posted slight losses but has recovered
- 101.20 is providing support
- There is resistance at 102.36
- Current range: 101.20 to 102.36
Further levels in both directions:
- Below: 101.20, 100.55, 99.71
- Above: 102.36, 103.73, 104.99 and 106.38
OANDA’s Open Positions Ratio
USD/JPY ratio remains unchanged on Tuesday. Currently, long positions have a substantial majority (64%), indicative of trader bias towards USD/JPY reversing directions and moving higher.
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