USD/JPY - Yen Rally Continues, U.S. Employment Report Next

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Includes: FXY, UDN, UUP
by: Dean Popplewell

By Kenny Fisher

The Japanese yen has looked sharp this week, gaining 130 points against the US dollar and dropping below the symbolic 120 level. In Wednesday’s European session, USD/JPY is trading at 119.40. In economic news, Japanese Consumer Confidence dipped to 42.5 points, shy of the estimate of 43.8 points. Over in the US, there are two major events, ADP Nonfarm Employment Change and ISM Non-Manufacturing PMI.

The yen has battled back this week, as USD/JPY has dropped below the 120 level. The yen dropped sharply late last week, following the BOJ’s decision to adopt negative interest rates, which shocked the markets. This move by the BOJ means that financial institutions which place funds with the BOJ will be charged 0.1%. This is the first time that the BOJ has adopted negative rates, but this policy has been utilized by the ECB in the past, in order to lower borrowing costs and coax banks into lending more funds. Will this latest move kick-start the weak Japanese economy? Japanese fundamentals have not impressed, and there was more bad news on Tuesday, as Consumer Confidence dropped to 42.5 points, indicative of a pessimistic Japanese consumer. Weak consumer confidence usually translates into decreased consumer spending, which would hamper the BOJ’s attempts to increase economic growth.

Solid US job numbers in the second half of 2015 helped convince the Federal Reserve to raise interest rates in December, but employment numbers have been lukewarm early in 2016. Next up is ADP Nonfarm Employment Change, with the official Nonfarm Payrolls report to follow on Friday. The markets are braced for a weak ADP report, with the estimate standing at just 193 thousand for January, compared to 257 thousand a month earlier. If the indicator does indeed slip badly, traders can expect the dollar to take a hit during the North American session. Employment numbers will be closely monitored by the Fed, which will have to decide if the economy is ready for another rate hike in March. In the heady days following the Fed’s historic rate hike, there was talk of up to four rate hikes in 2016, but this appears unlikely, given current economic conditions and the collapse of oil prices.

USD/JPY Fundamentals

Wednesday (Feb. 3)

  • 00:00 Japanese Consumer Confidence. Estimate 43.8 points. Actual 42.5 points
  • 8:15 US ADP Nonfarm Employment Change. Estimate 193K
  • 9:45 US Final Services PMI. Estimate 53.7 points
  • 10:00 US ISM Non-Manufacturing PMI. Estimate 55.1 points
  • 10:30 US Crude Oil Inventories. Estimate 3.7M

Upcoming Key Events

Thursday (Feb. 4)

  • 8:30 US Unemployment Claims. Estimate 279K

*Key releases are highlighted in bold

*All release times are EST

USD/JPY for Wednesday, February 3, 2016

USD/JPY February 3 at 6:45 EST

Open: 119.85 Low: 119.42 High: 120.04 Close: 119.40

USD/JPY Technical

S3 S2 S1 R1 R2 R3
115.90 116.88 118.53 119.58 120.40 121.50
Click to enlarge
  • USD/JPY was steady in the Asian session and has posted slight losses in European trade.
  • 119.58 has switched to a resistance role following gains by the yen. This is a weak line which could see more action during the day.
  • 118.53 is providing support
  • Current range: 118.53 to 119.58

Further levels in both directions:

  • Below: 118.53, 116.88 and 115.90
  • Above: 120.40, 121.50, 122.40 and 123.67

OANDA’s Open Positions Ratio

USD/JPY ratio is showing slight movement towards long positions, consistent with the pair posting losses and covering short positions. Long positions have a solid majority (66%), which is indicative of strong trader bias towards the pair reversing directions and moving 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.