USD/JPY – US Dollar Higher Ahead of Fed Announcement

USD/JPY has posted gains in the Wednesday session, pushing above the 113 level. Currently, the pair is trading at 113.30. On the release front, Japanese Final Manufacturing PMI edged up to 52.7, within expectations. In the US, there are two key indicators – ISM Manufacturing PMI and the ADP payrolls. As well, the Federal Reserve issues a rate statement and set the benchmark rate, which is expected to remain pegged at 0.50%. On Thursday, the US will publish unemployment claims.

All eyes are on the Federal Reserve, which will release a policy statement later on Wednesday. After a historic quarter-point raise in December, which pushed rates to 0.50 percent, the Fed is expected to remain on the sidelines in its first release of 2017. What happens next? Just a few weeks ago, Fed officials were talking about a series of rates hikes in 2017 in response to a strong US economy (sound familiar? Please rewind to January 2016 for an identical message). However, after just 10 days on the job, President Trump has proven to be as unpredictable and controversial as ever. Trump has not provided any details about his economic blueprint for the country, but he has raised the rhetoric about “America first” and has already picked a fight with Mexico over a border wall and his threat to renegotiate the NAFTA trade agreement. After hinting at gradual rate increases, the Fed will likely change gears and adopt a wait-and-see attitude, watching what bills Trump gets through Congress and how the economy responds. If economic growth remains strong, a rate hike in the first half of 2017 will have to be seriously considered by the Fed. The markets have priced in a rate hike by June at 66 percent.

Fed Expected to Hold as Trump Comments Sink Dollar

On Monday, the BoJ maintained interest rates at -0.10%, where they have been pegged since January 2016. The bank raised its GDP projection for fiscal year 2017 to 1.5 percent, up from 1.3 percent. At the same time, the BoJ highlighted the uncertainty that the economy faces due to the new US administration. President Trump has already taken some protectionist moves, and this could have a negative effect on Japan, which relies heavily on exports. The Japanese yen remains at low levels and the BoJ has previously said that it would consider taking action if the dollar rose above 120 yen. However, after the rate announcement, BoJ Governor said that the bank does not have a target for the currency.

USD/JPY Fundamentals

Tuesday (January 31)

  • 19:30 Japanese Final Manufacturing PMI. Estimate 52.8. Actual 52.7

Wednesday (February 1)

  • 8:15 US ADP Nonfarm Employment Change. Estimate 165K
  • 9:45 US Final Manufacturing PMI. Estimate 55.1
  • 10:00 US ISM Manufacturing PMI. Estimate 55.0
  • 10:00 US Construction Spending. Estimate 0.2%
  • 10:00 US ISM Manufacturing Prices. Estimate 66.0
  • 10:30 US Crude Oil Inventories. Estimate 2.6M
  • All Day – US Total Vehicle Sales. Estimate 17.9M
  • 14:00 US FOMC Statement
  • 14:00 US Federal Funds Rates. Estimate <0.75%
  • 18:50 Japanese Monetary Base. Estimate 24.2%
  • 22:45 Japanese 10-year Bond Auction

Upcoming Key Releases

Thursday (February 2)

  • 8:30 US Unemployment Claims. Estimate 251K

*All release times are GMT

*Key events are in bold

USD/JPY for Wednesday, February 1, 2017

USD/JPY February 1 at 7:00 EST

Open: 112.77 High: 113.63 Low: 112.73 Close: 113.26

USD/JPY Technical

S3 S2 S1 R1 R2 R3
109.85 110.94 112.57 113.80 114.83 115.90

USD/JPY ticked higher in the Asian session. The pair posted slight gains and then retracted in European trade

  • 112.57 is providing support
  • 113.80 is the next resistance line
  • Current range: 112.57 to 113.80

Further levels in both directions:

  • Below: 112.57, 110.94 and 109.85
  •  Above: 113.80, 114.83, 115.90 and 116.88

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged in the Wednesday session. Currently, long positions have a slight majority (53%). This is indicative of slight trader bias towards USD/JPY continuing to move 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.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.