USD/JPY: Yen Sliding As Dollar Heads Toward 110

USD/JPY continues to post gains on Wednesday, as the pair is trading at 109.50. On the release front, there are no Japanese events on the schedule. In the US, today’s highlight is PPI. On Thursday, there are a host of major US events, led by CPI. As well, Fed chair Janet Yellen will testify before the Congressional Joint Economic Committee.

As the dust settles from last week’s election shocker, what can we expect from President Trump? The markets went on a roller-coaster ride after the election, but appear to have settled down. Market sentiment is currently very favorable towards the dollar, as a Trump presidency (together with a Republican-controlled Congress) could signal a looser fiscal policy and a cut in taxes. This would likely result in greater inflation, which would lead to higher interest rates and hence a stronger dollar.

At the same time, Trump is a political enigma, and aside from being “pro-business” he has been very short on specifics with regard to an economic platform. This lack of certainty means the markets could be in for plenty of surprises which could translate into volatility in the currency markets. Meanwhile, the Japanese currency is spiraling downwards, as USD/JPY has plunged 4.6 percent since November 7. 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.

With the Federal Reserve meeting for a policy next month, expectations are sky-high that the Fed will press the trigger and raise rates by a quarter-point for the first time in a year. There have been several false starts before, but this time should be different. The Fed has sent out strong signals that it will raise rates, and in the past two rate decisions, some FOMC members voted for an immediate rate hike. The odds of a rate rise currently stand at a remarkable 90 percent, so barring some sharp negative data out of the US, we’ll see a rate hike before the end of 2016.

USD/JPY Fundamentals

Wednesday (November 16)

  • 8:05 US FOMC Member James Bullard Speech
  • 13:30 US PPI. Estimate 0.3%
  • 13:30 US Core PPI. Estimate 0.2%
  • 14:15 US Capacity Utilization Rate. Estimate 75.5%
  • 14:15 US Industrial Production. Estimate 0.2%
  • 15:00 US NAHB Housing Market Index. Estimate 63 points
  • 15:30 US Crude Oil Inventories. Estimate 0.4M
  • 21:00 US TIC Long-Term Purchases. Estimate 32.9B

Thursday (November 17)

  • 13:30 US Building Permits. Estimate 1.19M
  • 13:30 US CPI. Estimate 0.4%
  • 13:30 US Core CPI. Estimate 0.2%
  • 13:30 US Philly Fed Manufacturing Index. Estimate 8.1 points
  • 13:30 US Unemployment Claims. Estimate 257K
  • 15:00 US Fed Chair Janet Yellen Testifies

*All release times are EST

*Key events are in bold

USD/JPY for Wednesday, November 16, 2016

USD/JPY Nov 15 – 17 Chart

USD/JPY November 16 at 5:45 EST

Open: 108.99 High: 109.66 Low: 108.78 Close: 109.63

USD/JPY Technical

  • USD/JPY has been flat in the Asian and European sessions
  • 109.47 has switched to a support level following gains by USD/JPY
  • 110.68 is a strong resistance line
  • 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 showing slight movement long positions. Currently, short positions have a slender majority (52%), indicative of a lack of trader bias as to what direction USD/JPY will take next.

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