USD/JPY: Surging Dollar Punches Above 118 Yen

USD/JPY continues to gain ground early in the New Year, having posted gains in the Tuesday session. Currently, the pair is trading at 118.30. Japanese markets are closed for a fourth straight day, so there are no Japanese events on the schedule. In the US, today’s key event is ISM Manufacturing PMI, with the indicator expected to rise to 53.7 points. On Wednesday, the Federal Reserve will publish the minutes of its last policy meeting.

The Federal Reserve will be back on center stage on Wednesday, with the release of the minutes from the December policy meeting, when the Fed finally raised rates for the first time since December 2015. Analysts will be combing through the minutes, looking for clues regarding future monetary policy. The US economy is performing very well, and the markets are hopeful that this continues as Donald Trump takes office. Trump’s economic policies remain sketchy, although he has promised to increase fiscal spending while lowering taxes. If the economy’s positive momentum continues in early 2017, the Fed could be inclined to raise rates another quarter point in order to prevent the economy from overheating. A rate hike would likely lead to broad gains for the US dollar.

The New Year hasn’t brought much cheer to the Japanese yen. The currency has slipped 1.7% since December 30, and USD/JPY is trading at 2-week highs. The currency plunged 14.7 percent in the fourth quarter, as the US dollar took full advantage of a strong US economy and a hawkish Federal Reserve, which raised interest rates in December. The Japanese economy continues to struggle, and last week’s key consumer indicators pointed to continuing weakness in inflation and spending. Household Spending declined 1.5%, marking a ninth straight decline. The markets had predicted a small gain of 0.2%. The Japanese economy continues to grapple with deflation, as Tokyo Core CPI continues to post declines. If the US economy continues to heat up in 2017, we could see the Fed step in with further rate hikes, which would likely push the yen to even lower levels.

Tuesday (January 3)

  • 9:45 US Final Manufacturing PMI. Estimate 54.2
  • 10:00 US ISM Manufacturing PMI. Estimate 53.7
  • 10:00 US Construction Spending. Estimate 0.5%
  • 10:00 US ISM Manufacturing Prices. Estimate 55.6

Wednesday (January 4)

  • 14:00 US FOMC Meeting Minutes

*All release times are GMT

*Key events are in bold

USD/JPY for Tuesday, January 3, 2017

USD/JPY Chart

USD/JPY January 3 at 6:30 EST

Open: 117.45 High: 118.20 Low: 117.28 Close: 118.32

USD/JPY Technical

S3S2S1R1R2R3115.88116.88118.05118.85119.83121.39
  • USD/JPY was flat in the Asian session but has posted sharp gains in European trade
  • 118.05 has switched to a support role
  • 118.85 is the next line of resitance
  • Current range: 118.05 to 118.85

Further levels in both directions:

  • Below: 118.05, 116.88, 115.88 and 114.83
  • Above: 118.85, 119.83 and 121.39

OANDA’s Open Positions Ratio

USD/JPY ratio is almost unchanged in the session. Short positions have a majority (57%), indicative of trader bias towards USD/JPY reversing directions and moving to lower ground.

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