USD/JPY -Yen Drops to 10-Week Low as US Durable Goods Shine

USD/JPY has posted gains on Wednesday, continuing the upward movement we saw on Tuesday. In North American trade, the pair is trading at 112.81, up 0.54% on the day. On the release front, BoJ Governor Haruhiko Kuroda will speak at a conference in Tokyo. In the US, Durable Good Orders sparkled with a 1.7% gain, well above the estimate of 1.0%. Core Durable Goods slowed to 0.2%, matching the estimate. Pending Home Sales was unexpectedly soft, posting a decline of 2.5%, compared to an estimate of -0.5%. On Thursday, the US will publish Final GDP and unemployment claims.

The BoJ is stubbornly sticking with its ultra-accommodative policy, and this was reiterated in the minutes of the Bank’s August policy meeting. Most policymakers remained in favor of continuing present policy, and expressed optimism that inflation levels would move higher. Is there a real basis to this positive sentiment? Inflation remains well short of the BoJ target of just below 2 percent, and in its most recent forecast, the BoJ said that this target would not be met until 2020. Still, the BoJ has so far rejected calls to lower its inflation target, so it’s unlikely that the Bank will taper its radical stimulus program anytime soon.

For some time, the markets have been looking for guidance from Fed Chair Janet Yellen regarding interest rate policy. Yellen did not disappoint, as she sent out a surprisingly hawkish message on Tuesday, strengthening the US dollar. Yellen said that she favored gradual rate increases, and voiced confidence that inflation levels would move higher. She added that if the Federal Reserve did not continue to raise rates, the red-hot labor market could become overheated, potentially causing a recession. At the same time, her Fed colleagues remain split on a December rate hike. On Monday, New York Fed President William Dudley made a strong case to raise rates. Dudley cited a soft US dollar and strong global growth as reasons why inflation would increase and also translate into stronger wage growth. Dudley said he expects inflation to reach the Fed’s target of 2 percent in the “medium term”, and predicted that the Fed would continue to gradually remove monetary accommodation. However, Chicago Fed President Charles Evans sent out a very different message, calling on the Fed to avoid another rate hike until wage and inflation levels moved higher. Evans said that inflation, which is running at around 1.4%, is too low, and wants to see “clear signs” that prices are moving higher before the Fed presses the rate trigger. For their part, the markets are more confident in a December move – the CME Group has pegged the odds of a December raise at 81%, while the odds were mired below 50% just a few weeks ago.

USD/JPY Fundamentals

Wednesday (September 27)

• 8:30 US Core Durable Goods Orders. Estimate 0.2%. Actual 0.2%
• 8:30 US Durable Goods Orders. Estimate 1.0%. Actual 1.7%
• 10:00 US Pending Home Sales. Estimate -0.5%. Actual -2.6%
• 10:30 US Crude Oil Inventories. Estimate +2.9M. Actual -1.8M 
• 14:00 US FOMC Member Lael Brainard Speaks

Thursday (September 28)

• 8:30 US Final GDP. Estimate 3.0%
• 8:30 US Unemployment Claims. Estimate 269K

*All release times are GMT

*Key events are in bold

USD/JPY for Wednesday, September 27, 2017

USD/JPY September 27 at 10:30 EDT

Open: 112.20 High: 113.25 Low: 112.20 Close: 112.81

USD/JPY Technical

USD/JPY edged higher in the Asian session. The pair posted further gains in the European session but has reversed directions and is moving lower in North American trade

• 112.57 is providing support. It could come under pressure in the North American session
• 113.55 is the next resistance line

Current range: 112.57 to 113.55

Further levels in both directions:

• Below: 112.57, 110.94, 110.10 and 108.69
• Above: 113.55, 114.49 and 115.50

OANDA’s Open Positions Ratios

USD/JPY ratio remains unchanged this week. Currently, long positions with a majority (54%), indicative of trader bias towards USD/JPY continuing to move 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.