USD/JPY – Yen Climbs to 4-week Highs on US Election Jitters

USD/JPY continues to post losses in the Thursday session, continuing the downward trend which has marked the pair for most of this week. The yen has enjoyed a rebound this week, gaining 1.5 percent. On the release front, US unemployment claims is expected to show little change, with an estimate of 257 thousand. Another key release, ISM Non-manufacturing PMI is expected to dip to 56.2 points. There are no Japanese releases for the remainder of the week. On Friday, the US will release additional employment numbers, led by Nonfarm Employment Change. The indicator is expected to climb to 174 thousand.

The Japanese consumer is pessimistic and no mood to spend, according to recent economic numbers. Consumer Confidence continues to post soft readings. The indicator dipped to 42.3 points in October, short of the estimate of 42.8 points. Retail Sales continue to contract, as the September reading of -1.9% was only slightly better than the August report of -2.1%. The indicator has managed only one gain in 2016. There were no surprises from the BoJ on Tuesday, which remained on the sidelines and made no changes to its monetary policy. The bank maintained interest rates at -0.10% and also lowered its inflation forecast for 2017, from 1.7 percent to 1.5 percent. The BoJ’s sounded dovish in tone in its policy statement. The bank said that with regard to risk balance, “risks to both economic activity and prices are skewed to the downside” and expects the export sector to remain “sluggish”.

As expected, the Federal Reserve maintained the benchmark interest rate at 0.25% at Wednesday’s policy meeting. However, the tone of the policy statement was slightly hawkish message with regard to a December hike. The Fed said that the economy has improved and the employment market remains strong. The Fed also noted that inflation was moving towards its target of 2 percent. Weak inflation has long been the Achilles heel of the US economy, but this obstacle to a rate hike appears to have been removed. The policy statement hinted strongly at a December hike, noting that “the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives”.  Two FOMC members voted to raise rates immediately, Fed Presidents Esther George and Loretta Mester. With a December hike currently priced at over 70 percent, market sentiment towards the US dollar should remain positive and we could see gains against the euro and other major currencies.

USD/JPY Fundamentals

Thursday (November 3)

• 7:30 US Challenger Job Cuts
• 8:30 US Unemployment Claims. Estimate 257K
• 8:30 US Preliminary Nonfarm Productivity. Estimate 1.7%
• 8:30 US Preliminary Unit Labor Costs. Estimate 1.6%
• 9:45 US Final Services PMI. Estimate 54.8
• 10:00 US ISM Non-Manufacturing PMI. Estimate 56.2
• 10:00 US Factory Orders. Estimate 0.2%
• 10:30 US Natural Gas Storage. Estimate 55B

Friday (November 4)

• 8:30 US Average Hourly Earnings. Estimate 0.3%
• 8:30 US Nonfarm Employment Change. Estimate 174K
• 8:30 US Unemployment Rate. Estimate 4.9%

*All release times are EDT

*Key events are in bold

USD/JPY for Thursday, November 3, 2016

USD/JPY November 3 at 6:50 EDT

Open: 103.39 High: 103.44 Low: 102.54 Close: 103.03

USD/JPY Technical

• USD/JPY posted considerable losses in the Asian session and has been choppy in European trade
• 103.02 remains fluid. Currently, it is a weak support level.
•  104.32 is a strong resistance line
• Current range: 103.02 to 104.32

Further levels in both directions:

• Below: 103.02, 102.36 and 101.20
•  Above: 104.32, 105.44, 106.72 and 107.49

OANDA’s Open Positions Ratio

USD/JPY ratio is showing movement towards long positions. Currently, long positions have a majority (58%), indicative of 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.