USD/JPY - Strong Yen Shrugs Off Weak Japanese Inflation Report

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Includes: FXY, UDN, UUP
by: Dean Popplewell

By Kenny Fisher

The Japanese yen is steady on Wednesday, as USD/JPY trades slightly below the 115 line in the European session. On the release front, Japanese PPI posted a sharp decline of 3.1%. In the US, today’s key event is on Capitol Hill, as Federal Reserve Chair Janet Yellen will testify before the House Financial Services Committee. With the markets looking for clues regarding the timing of another rate hike, this event could be a market-mover, so traders should be prepared for possible volatility in the currency markets. The US will release Crude Oil Inventories, which has posted sharp surpluses in the past two readings.

The Japanese yen remains a market favorite, as the currency shrugged off two weak indicators on Tuesday. Preliminary Machine Tool Orders posted a sharp decline of 17.2%. This was followed by soft reading from PPI, an important inflation indicator. The index dropped 3.1% in January, marking the 10th consecutive month that it has recorded a decline. These weak readings point to ongoing weakness in the Japanese manufacturing sector, which has been hit hard by weak global demand and decreased spending by Japanese consumers. Still, the yen has looked superb, climbing a remarkable gaining 650 points against the dollar since February 1. The financial turmoil which has gripped markets across the globe due to the collapse in oil prices and the Chinese slowdown have been a tonic for the safe-haven Japanese currency, as nervous investors scurry away from risk assets.

Fed Chair Janet Yellen will testify before Congress on Wednesday and Thursday, and is sure to face some pointed questions from lawmakers. After a historic rate hike in December, the Fed remained on the sidelines in January, and its dovish policy statement reflected a softening in US economic growth. Does this mean a March rate move is off the table? Naturally, the Fed will not give a clear answer to this question, but the markets will be looking for some clarity from Janet Yellen about the Fed’s monetary plans. If Yellen paints a pessimistic picture of the economy, the yen rally could continue. Just a couple of months ago, the Fed was hinting that we could see a series of rate hikes in 2016, but the recent turmoil in global markets has drastically changed these plans, with some experts openly questioning if the Fed will make any more moves before next year.

USD/JPY Fundamentals

Tuesday (Feb. 9)

  • 18:50 Japanese PPI. Estimate -2.8%. Actual -3.1%

Wednesday (Feb. 10)

  • 10:00 Fed Chair Janet Yellen Testifies
  • 10:30 US Crude Oil Inventories. Estimate 3.1M
  • 13:01 US 10-year Bond Auction
  • 14:00 US Federal Budget Balance. Estimate 10.3B

Upcoming Key Events

Thursday (Feb. 11)

  • 8:30 US Unemployment Claims. Estimate 287K
  • 10:00 Fed Chair Janet Yellen Testifies

*Key releases are highlighted in bold

*All release times are EST

USD/JPY for Wednesday, February 10, 2016

USD/JPY February 10 at 6:10 EST

Open: 115.18 Low: 114.24 High: 115.21 Close: 114.88

USD/JPY Technical

S3 S2 S1 R1 R2 R3
112.48 113.86 114.65 115.90 116.88 118.53
Click to enlarge
  • USD/JPY posted light losses in the Asian session but has recovered in European trade
  • 114.65 was tested earlier in support and is a weak line
  • There is resistance at 115.90
  • Current range: 114.65 to 115.90

Further levels in both directions:

  • Below: 114.65, 113.86 and 112.48
  • Above: 115.90, 116.88, 118.53 and 119.58

OANDA’s Open Positions Ratio

USD/JPY ratio continues to show movement towards short positions, which command a strong majority (67%). This 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.