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USD/JPY – U.S. Dollar Improves, Pushes To 118

USD/JPY – U.S. Dollar Improves, Pushes To 118

USD/JPY continues to rally this week; the pair trades at the 118 line in Tuesday’s European session. On the release front, it’s a quiet day. There are no Japanese releases on the schedule, and two minor events out of the US. We’ll get a look at key US numbers on Wednesday, with the release of CPI and Building Permits.

The US dollar has rebounded this week, erasing most of the losses the greenback sustained on Friday. USD/JPY had dropped all the way to 116.50, its lowest level since August 2015. The yen took full advantage of mostly downbeat US economic reports. Core Retail Sales and Retail Sales both posted declines of 0.1%, pointing to weakness in consumer spending, a key driver of economic growth. The safe-haven yen has benefited from jittery investors, as China continues to show signs of slowdown. Chinese GDP for the fourth quarter showed another drop, as the key indicator dipped to 6.8%, shy of the forecast of 6.9%. GDP for 2016 came in at 6.9%, the weakest gain in 25 years. At the same time, Japanese fundamentals have not kept pace with US numbers, and the Bank of Japan remains under strong pressure to increase monetary easing and kick-start the struggling Japanese economy. Such moves by the BOJ would likely weaken the Japanese yen.

With the Fed finally pressing the rate trigger in December, the markets are looking for hints of the timing of the next interest rate increase. A rate hike at next week’s policy meeting is not considered likely, coming so soon after the December move. A hike by the Fed in March is more probable, although this is contingent on a strong US economy. Although the economy is in good shape, one major area of concern is the inflation picture. Inflation levels have not kept up with other economic indicators and remain at low levels. Another concern is a lack of wage growth, despite a robust labor market. The Fed will be keeping a close eye on Wednesday’s CPI reports, and it’s a safe bet that policymakers will want to see stronger inflation numbers before signing on for another rate hike.

USD/JPY Fundamentals

Tuesday (Jan. 19)

  • 10:00 US NAHB Housing Market Index. Estimate 61 points
  • 16:00 US TIC Long-Term Purchases
  • 18:30 Australian Westpac Consumer Sentiment

Upcoming Key Events

Wednesday (Jan. 20)

  • 8:30 US Building Permits. Estimate 1.20M
  • 8:30 US CPI. Estimate 0.0%
  • 8:30 US Core CPI

*Key releases are highlighted in bold

*All release times are EST

USD/JPY for Tuesday, January 19, 2016

USD/JPY Chart January 18-20

USD/JPY January 19 at 8:40 EST

Open: 117.40 Low: 117.23 High: 118.11 Close: 117.99

USD/JPY Technical

  • USD/JPY posted gains in the Asian session and has leveled off in European trade
  • 116.88 has some breathing room in support as the pair has posted gains
  • 118.53 is a weak line of resistance
  • Current range: 116.88 to 118.53

Further levels in both directions:

  • Below: 116.88, 115.45 and 113.23
  • Above: 118.53, 119.58 and 120.40

OANDA’s Open Positions Ratio

USD/JPY ratio remains unchanged. Long positions continue to command a solid majority (63%), which is indicative of strong trader bias towards the pair continuing to move higher.

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