Yen Unchanged, U.S. Manufacturing PMI Next

The Japanese yen is unchanged on Monday, following sharp gains in the Friday session. USD/JPY is currently trading slightly above the 102 level. On the release front, Japanese Final Manufacturing PMI posted a weak reading of 49.3 points, within expectations.

Later in the day, the US will release ISM Manufacturing PMI, a key indicator. Little change is expected in the July reading, with an estimate of 53.1 points.

The US dollar was broadly lower on Friday, courtesy of a surprisingly soft US GDP report. Preliminary GDP for the second quarter was projected at 2.6%, but posted a much smaller gain of 1.6%. The yen jumped all over the greenback, gaining almost 300 points on Friday.

This marked the end of a banner week for the Japanese currency, as USD/JPY plunged some 430 points last week, its sharpest weekly decline since February. The soft reading not only pushed the dollar lower, but has dampened enthusiasm regarding a rate hike by the Fed, which last week stayed on the sidelines yet again.

On Monday, FOMC William Dudley, a close ally of Janet Yellen, said that the Brexit fallout posed a risk to the US economy and urged the Fed to proceed with caution before raising interest rates.

The US will release wage growth and nonfarm payrolls later in the week, and these key employment numbers will be carefully monitored by the Fed as it mulls over a possible rate hike. If these releases do not meet expectations, the likelihood a move in September will sharply decrease.

The Bank of Japan had little to say at its policy meeting on Thursday, opting to remain on the sidelines and not utilize its key monetary tools. The bank did not cut interest rates or expand its asset-purchase program, which stands at JPY/80 billion/mth.

The bank did throw the markets a bone, announcing an increase to its ETF (exchange traded funds) program by 2.7 trillion yen ($26 billion) a year. However, the BoJ’s failure to take more aggressive moves in order to kick-start the listless Japanese economy surprised the markets, and the yen responded with gains as high as 2 percent following the policy statement announcement.

One item of interest in the statement was the bank’s intention to implement a comprehensive review of its policy framework due to “considerable uncertainty” over inflation, which has remains at much lower levels than projected by the BoJ.

Meanwhile, the guessing game about the size of the government’s spending package appears to be over, as Prime Minister Abe announced a package of JPY 28 trillion earlier in the week.

The markets had expected a smaller program of about JPY 20 trillion yen, and the yen lost ground following Abe’s announcement. We could see further volatility from USD/JPY as additional details about the spending package are released.

USD/JPY Fundamentals

Sunday (July 31)

  • 22:00 Japanese Final Manufacturing PMI. Estimate 49.0. Actual 49.3

Monday (August 1)

  • 9:45 US Final Manufacturing PMI. Estimate 52.9
  • 10:00 US ISM Manufacturing PMI. Estimate 53.1
  • 10:00 US Construction Spending. Estimate 0.5%
  • 10:00 ISM Manufacturing Prices. Estimate 61.0
  • Tentative – US Loan Officer Survey
  • 19:50 Japanese Monetary Base. Estimate 24.3%
  • 23:45 Japanese 10-year Bond Auction

*Key events are in bold

*All release times are EDT

USD/JPY for Monday, August 1, 2016


USD/JPY August 1 at 9:30 EDT

Open: 102.33 High: 102.68 Low: 102.15 Close: 102.20

USD/JPY Technical

  • USD/JPY has been flat in the Asian and European sessions
  • 101.20 is a strong support level
  • 102.36 was tested earlier and in support and is a weak line
  • Current range: 101.20 to 102.36

Further levels in both directions:

  • Below: 101.20, 99.71 and 0.9895
  • Above: 102.36, 103.73, 104.99 and 105.87

OANDA’s Open Positions Ratio

The USD/JPY ratio has shown gains in long positions, consistent with the strong drop by USD/JPY which covered short positions. Currently, long positions have a majority (67%), indicative of trader bias towards USD/JPY reversing directions and moving to higher ground.

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