USD/JPY: USD Punches Above 110 As Fed Signals Rate Move Imminent

USD/JPY continues to post gains on Friday, as the pair trades at 110.30. On the release front, there are no Japanese events. The sole economic release in the US is the CB Leading Index, with an estimate of 0.1%. The markets will be more interested in hearing from three FOMC members, who will deliver speeches during the day. This follows Janet Yellen’s testimony before the Joint Economic Committee on Thursday.

The Japanese currency continues to head south, as USD/JPY has broken above symbolic 110 level. The pair has surged 5.6 percent since November 7, and is at its highest level since the end of May. The BoJ is clearly encouraged by the falling yen, which is good news for Japan’s export sector and could boost inflation towards the bank’s target of 2.0 percent. The bank held interest rates at -0.10% at the last policy meeting and is not expected to make any monetary moves in December, despite a weak economy gripped by deflation.

US numbers were generally positive on Thursday, as the economy continues to move in the right direction. Unemployment Claims sparkled at 235 thousand, much lower than the estimate of 257 thousand. This marked the lowest weekly claims total since 1973. CPI matched expectations at 0.4%, but Core CPI came in at 0.1% shy of the estimate of 0.2%. The Philly Fed Manufacturing Index dropped to 7.6 points, short of the forecast. On the housing front, Housing Starts remained unchanged at 1.23 million, above expectations.

The US dollar posted sharp gains on Thursday, following Fed Chair Yellen’s appearance before a congressional committee. Yellen did not explicitly acknowledge that the Fed would raise rates at the December 13-14 policy meeting, but she did say that the rate hike would be “relatively soon”. Yellen make no mention of Donald Trump’s potential policies, which could include greater fiscal spending, as she reiterated that future rate hikes should be “gradual”. The odds of a rate hike next month stand at 90 percent. Commenting on Yellen’s testimony, Jonathan Wright, a former Fed economist, summed up market sentiment – “a rate hike in December is a done deal, barring a significant surprise in the next jobs numbers or in financial markets”.

USD/JPY Fundamentals

Friday (November 18)

  • 10:30 US FOMC Member James Bullard Speaks
  • 14:30 US FOMC Member William Dudley Speaks
  • 14:30 US FOMC Member Esther George Speaks
  • 15:00 US CB Leading Index. Estimate 0.1%

*All release times are EST

*Key events are in bold

USD/JPY for Friday, November 18, 2016

USD/JPY Nov 17 To Nov 18, 2016

USD/JPY November 18 at 11:00 EST

Open: 110.24 High: 110.93 Low: 109.95 Close: 110.35

USD/JPY Technical

  • USD/JPY posted slight gains in the Asian session and is flat in European trade. The pair broke through two resistance lines on Thursday following strong gains by USD/JPY
  • 109.47 is providing support
  • 110.68 was tested in resistance earlier and is a weak line. It could break in the North American session
  • Current range: 109.47 to 110.68

Further levels in both directions:

  • Below: 109.47, 108.61, 107.49 and 106.72
  • Above: 110.68, 111.45, and 112.48

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged in the Friday session. Currently, short positions have a majority (56%), indicative of trader bias towards USD/JPY reversing directions and moving lower.

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