USD/JPY – Yen climbs to 1-month high as Fed weighs on greenback

The Japanese yen continues to rally, as USD/JPY has dropped to a 1-month low. In Thursday’s North American session, the pair is trading at 110.64, down 0.09% on the day. In the U.S., the Philly Fed Manufacturing Index and unemployment claims both beat expectations.

Have trade talks between the U.S. and China reached an impasse? There have been growing expectations that the sides will reach an agreement, with a summit between President Trump and Chinese President Xi to follow. However, President Trump has adopted a tougher negotiating position, saying that the U.S. would maintain tariffs on China until it was clear that China was complying with a deal. Chinese officials are likely to insist that tariffs be removed as soon as a deal is signed, so a deadlock could be in the offing. Japan has been hit hard by the global trade war, and an agreement between the U.S. and China would provide as shot in the arm for the Japanese economy.

The Federal Reserve has been in dovish mode since January, but the pessimistic stance at the Wednesday policy meeting was a surprise. The Fed’s rate outlook (dot plot), which is released each quarter, showed that a majority of FOMC members expect no rate hikes in 2019. This was in sharp contrast to the previous quarter’s forecast, in which the FOMC projected two hikes this year.

The rate statement was markedly dovish, stating that economic activity “has slowed”. Policy makers singled out slower growth in household spending and business investment and noted that inflation has decreased due to lower energy prices. The Fed also announced that it would stop reducing its balance sheet by $50 billion a month. This move is a loosening of policy and is intended to stimulate the economy. The new Fed forecast projects GDP growth of 2.1%, down from 2.3% in December.

Aussie surges as unemployment hits eight-year low

Asymmetric trade deal sinks Fed rally

Dollar mixed as Fed rally fizzles

USD/JPY Fundamentals

Thursday (March 21)

• 8:30 US Philly Fed Manufacturing Index. Estimate 4.6. Actual 13.7
  
• 8:30 Unemployment Claims. Estimate 226K. Actual 221K
  
• 10:00 US CB Leading Index. Estimate 0.1%
• 10:30 US Natural Gas Storage. Estimate -49B
• 19:30 Japanese National Core CPI. Estimate 0.8%
• 20:30 Japanese Flash Manufacturing PMI. Estimate 49.2

*All release times are EST

*Key events are in bold

USD/JPY for Thursday, March 21, 2019

USD/JPY March 21 at 8:40 DST

Open: 110.70 High: 111.75 Low: 110.30 Close: 110.61

USD/JPY Technical

USD/JPY posted slight losses in the Asian session and is showed limited movement in European trade. The pair has ticked higher early in North American trade

• 110.28 is under pressure in support. It could break in the North American session
• 110.90 is the next resistance line
• Current range: 110.28 to 110.90

Further levels in both directions:

• Below: 110.28, 109.37 and 108.11
• Above: 110.90, 112.16, 112.93 and 113.70

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