USD/JPY – Yen unchanged, U.S services PMI slips

The Japanese yen has started the new trading week with a yawn. In Monday’s North American session, USD/JPY is trading at 108.46, down 0.05% on the day. The sole U.S indicator, ISM Non-Manufacturing PMI, dropped to 57.6 in December, down from 60.7 in November. The reading points to strong expansion, but missed expectations. There are no major Japanese events. On Tuesday, Japan releases consumer confidence and income numbers. The U.S. will post JOLTS Job Openings.

The yen continues to surge, posting strong gains for a third consecutive week. USD/JPY has fallen 4.3% since mid-December, as turmoil in the equity markets has spooked investors and sent the yen surging higher. After a break for New Years’, the markets were blindsided when Apple announced a revenue warning, lowering its sales forecast for the fourth quarter. Panicky investors looked for safety and snapped up the Japanese yen, which gained momentum during the week, gaining 1.60%.

Federal Reserve Chair Jerome Powell made a concentrated effort to ease the volatility in the markets on Thursday. The markets had dropped sharply after the Fed’s December rate statement, which was less dovish than expected, as the Fed said it would continue raising interest rates in 2019. Powell tempered this stance with a more cautious outlook over rate policy. He said that he was aware of the risks of a slowdown in the U.S. economy and that the Fed would be patient in its policy decisions. The Fed is currently forecasting two rate hikes next year, but some analysts have forecast a rate cut next year, with the U.S. economy expected to slow down, compared to its torrid pace in 2018.

The ongoing global trade war has taken a bite out of the Japanese export sector. China, which is Japan’s largest trading partner, has begun to experience a slowdown. There are hopes that trade talks between the U.S. and China, which began on Monday, will ease tensions between the two largest economies. If the sides makes significant progress, risk appetite could rise and dampen the yen’s impressive rally.

Stocks pause as focus shifts to trade talks

Improved risk appetite supports dollars demise

USD/JPY Fundamentals

Monday (January 7)

• 10:00 US ISM Non-Manufacturing PMI. Estimate 59.6. Actual 57.6
  
• 22:35 Japanese 10-year Bond Auction

Tuesday (January 8)

• 00:00 Japanese Consumer Confidence. Estimate 42.8
• 8:30 US Trade Balance. Estimate -54.0B
• 10:00 US JOLTS Job Openings. Estimate 7.17M
• 19:00 Japanese Average Cash Earnings. Estimate 1.3%

*All release times are EST

*Key events are in bold

USD/JPY for Monday, January 7, 2019

USD/JPY January 7 at 11:00 EST

Open: 108.52 High: 108.62 Low: 108.02 Close: 108.46

USD/JPY Technical

USD/JPY edged lower in the Asian session and has posted limited gains in the European and North American sessions

• 108.11 was tested earlier in support. It is a weak line
• 109.37 is the next resistance line
• Current range: 108.11 to 109.37

Further levels in both directions:

• Below: 108.11, 106.88, 105.66 and 104.64
• Above: 109.37, 110.28 and 110.95

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