USD/JPY - Yen Flexes Muscles, U.S. Housing, Consumer Confidence Next

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Includes: FXY, UDN, UUP
by: Dean Popplewell

By Kenny Fisher

The Japanese yen has reversed directions and posted strong gains on Tuesday. In the European session, USD/JPY is trading at the 112 line. In economic news, Japan will release SPPI, which measures inflation in the corporate sector. Over in the US, there are two key events – CB Consumer Confidence and Existing Home Sales.

The yen rally continues, as USD/JPY is currently trading below the 112 line, its highest level in almost two weeks. February has been especially kind to the Japanese currency, which has jumped 7.6% this month against the dollar this month. Japanese fundamentals have not impressed, as GDP contracted in the fourth quarter, and Japanese consumer spending has fallen off, hurting growth and raising the specter of deflation, which would be a nightmarish scenario for policymakers. Despite the struggling Japanese economy, the Japanese yen has not only held its own against the strong US dollar, but has posted superb gains in recent weeks. The Japanese currency has taken full advantage of its traditional safe-haven status, as global financial turmoil has driven investors away from risk assets towards safer waters like the yen. However, the recent rush to safe assets will not last indefinitely, and with the economy struggling, weak fundamentals are not about to disappear. Given this backdrop, the BOJ may have to take further monetary action at its next policy meeting in March. At the January policy meeting, the BOJ adopted negative interest rates, shocking the markets and sending the yen sharply lower before the currency rebounded. Further easing steps would likely push the high-flying yen to lower levels.

The Federal Reserve has been in the headlines in recent weeks, but the markets remain unclear regarding the timing of another rate hike. The Fed sent out a cautious message in last week’s policy minutes, which reiterated the central bank’s concern that turmoil in global markets could have negative repercussions for the US economy. Policymakers sent out a broad hint that a rate hike is unlikely in March, as they discussed “altering their earlier views of the appropriate path for the target range for the federal funds rate”. This could have a negative impact on the US dollar, as investors will be looking at other options if US rates do not move higher. Fed policymakers appear divided on the Fed’s upcoming strategy. Janet Yellen said last week that the Fed still planned to raise rates later in 2016, but FOMC member James Bullard argued that there was room to delay any rate moves, given global financial turmoil and weak US inflation. Many market players are skeptical that the Fed will make any moves before next year. In December, the Fed hinted at a series of rate hikes during 2016, but the turmoil in the financial markets and the downturn in the US economy in early 2016 have left the timing of another hike in doubt.

USD/JPY Fundamentals

Tuesday (Feb. 23)

  • 9:00 US S&P/CS Composite-20 HPI. Estimate 5.8%
  • 10:00 US CB Consumer Confidence. Estimate 97.4 points
  • 10:00 US Existing Home Sales. Estimate 5.37M
  • 10:00 US Richmond Manufacturing Index. Estimate 2 points
  • 18:50 Japanese SPPI. Estimate 0.4%. Actual 0.3%
  • 20:30 US FOMC Stanley Fischer Speaks

Wednesday (Feb. 24)

  • 10:00 US Existing Home Sales. Estimate 522K

*Key releases are highlighted in bold

*All release times are EST

USD/JPY for Tuesday, February 23, 2016

USD/JPY February 23 at 6:15 EST

Open: 112.94 Low: 111.84 High: 113.00 Close: 112.00

USD/JPY Technical

S3 S2 S1 R1 R2 R3
108.58 109.87 111.50 112.48 113.86 114.65
Click to enlarge
  • USD/JPY posted losses in the Asian session and the downward trend has continued in European trade.
  • 11.50 is providing support
  • 112.48 has switched to a resistance role as the USD/JPY has posted sharp losses
  • Current range: 111.50 to 112.48

Further levels in both directions:

  • Below: 111.50, 109.87 and 108.58
  • Above: 112.48, 113.86, and 114.65

OANDA’s Open Positions Ratio

USD/JPY ratio is showing little movement. Long positions retain a strong majority (63%). This is indicative of strong trader bias towards the pair continuing to move upwards.

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.