USD/JPY – Yen Improves Despite Strong US Data

The Japanese yen has gained ground on Thursday, erasing most of the losses which marked the Wednesday session. In the North American session, USD/JPY is trading at 112.41, down 0.45% on the day. In economic news, unemployment claims plunged to 222 thousand, well below the estimate of 240 thousand. There was more good news, as the Philly Fed Manufacturing Index jumped to 27.9, crushing the estimate of 21.9 points. On Friday, the US will release Existing Home Sales and Fed Chair Janet Yellen speaks at an event in Washington.

Who will replace Janet? The markets are keeping a close eye on who will replace Janet Yellen as head of the powerful Federal Reserve. Yellen is due to finish her 3-year term in February 2018. Yellen is apparently interested in serving a second term, but President Trump likely has other ideas. Trump has not been complimentary towards Yellen, although it’s hard to argue with Yellen’s credentials. Yellen has ended quantitative easing, raised interest rates and started to unwind the Fed’s balance sheet. Trump’s shortlist includes Jerome Powell, Kevin Warsh and John Taylor. Trump may lean towards Taylor, an economist who is considered more hawkish on policy than Yellen. Under Taylor, interest rates would likely move substantially higher than the current 1.25%, and a rate hike early in 2018 could strengthen the US dollar.

Japan’s economy has impressed in 2017, and an important reason for the rebound has been the manufacturing sector. Manufacturing indicators are pointing upwards and recent polls are pointing to strong optimism among manufacturers. A Reuters poll released on Tuesday showed that manufacturer confidence in October was at its highest level since 2007, echoing a Bank of Japan survey taken earlier in October. Automobile and electric machinery exports remain strong and have helped boost the manufacturing sector. The BOJ holds a policy meeting on October 30-31, at which time it will set interest rates and will also publish its long-term economic and price forecasts. We can expect the economic forecasts to be more positive than the inflation projection. With the BoJ forecasting that inflation will not reach 2 percent until fiscal year 2020, it’s a safe bet that the bank’s accommodative policy will not be tightened any time soon.

USD/JPY Fundamentals

• 00:30 Japanese All Industries Activity. Estimate 0.2%. Actual 0.1%
• 8:30 US Unemployment Claims. Estimate 240K. Actual 222K
• 8:30 US Philly Fed Manufacturing Index. Estimate 21.9. Actual 27.9
• 10:00 US CB Leading Index. Estimate +0.1%. Actual -0.2%
• 10:30 US Natural Gas Storage. Estimate 59B
• Tentative – US Federal Budget Balance. Estimate -0.9B

Friday (October 20)

• 10:00 US Existing Home Sales. Estimate 5.30M
• 19:30 Fed Chair Janet Yellen Speaks

*All release times are GMT

*Key events are in bold

USD/JPY for Thursday, October 19, 2017

USD/JPY October 19 at 10:35 EDT

Open: 112.93 High: 113.15 Low: 112.30 Close: 112.41

USD/JPY Technical

USD/JPY showed little movement in the Asian session. The pair recorded losses in the European session and is steady in North American trade

• 110.94 is providing support
• 112.57 has switched to a resistance role after losses by USD/JPY on Thursday

Current range: 110.94 to 112.57

Further levels in both directions:

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

OANDA’s Open Positions Ratios

USD/JPY ratio is showing little movement in the Thursday session. Currently, short positions have a slender majority (52%), indicative of slight trader bias towards USD/JPY continuing to lose 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.