The Japanese yen posted sharp losses on Thursday as USD/JPY trades slightly below the 106 level. The markets are nervously keeping tabs on the Brexit vote in the UK. On the release front, Japanese Flash Manufacturing PMI came in at 47.8, short of expectations. Over in the US, today’s key event is Unemployment Claims, with the indicator expected to drop to 271 thousand. On Friday, the US releases Core Durable Goods Orders.
Brexit is finally here! After a bitter and hard-fought campaign, millions of UK voters are voting on whether the country remains in the EU or exits from the bloc. Most polls continue to show a neck-and-neck race between the "Remain" and Leave camps, so undecided voters will likely swing the vote and determine the final outcome. However, there is clearly a discrepancy between the polls and the market mood, as market sentiment continues to lean towards a victory by the "Remain" camp. This sentiment has boosted the pound, which is currently trading at 1.4850, its highest level in 2016. The "Remain" camp has warned that a vote to leave the EU would damage the UK economy, while the “Leave” vote has tapped into voter dissatisfaction with Brussels, particularly concerning immigration and over-regulation by the EU. The economic stakes are massive, as the UK economy of GBP 2.9 trillion is the fifth largest in the world and number two in Europe, after Germany. A vote to leave the comfort zone of the EU would be a journey into the unknown, with unpredictable economic and political consequences for both the UK and the European Union. The safe-haven yen could weaken if the UK stays put, as investors would then feel more comfortable with risk.
Janet Yellen was cautious and tentative in testimony before Congress this week. She acknowledged that the US economy could face some adversity, saying that “[c]onsiderable uncertainty about the economic outlook remains”. Yellen said that she’s “hopeful that we will see a pickup in growth”, but skeptics might respond that the markets want to see action from the Fed and not just hope. The Fed has clearly been out of sync with the markets, as underscored by the Fed’s statements back in December that it might raise rates in 2016 up to four times. Meanwhile, here we are in June, and there’s no clear indication that the Fed will raise rates at all this year. In her testimony, Yellen said she does not expect the US economy to enter a recession, but if such a scenario did occur, the US would not follow Japan and Europe and adopt negative interest rates. On a more positive note, Yellen said that weak oil prices, low interest rates and stronger wage growth should support consumer spending.
With the BoJ shying away from further easing, the Japanese yen could take advantage and continue to climb against the US dollar. USD/JPY has climbed 6.4% so far in June, and dropped to 103.50 on Monday, its lowest level since August 2014. The yen’s strength has alarmed Japanese policymakers, who continue to warn against currency manipulations. On Friday, Japanese Finance Minister Taro Aso said that he wanted global coordination against what he termed “abrupt changes” in currency movements. The US has called on Japan to refrain from any unilateral movement, and at the recent G-7 meeting of finance ministers, the US and Japan publicly bickered as to whether the yen’s rise was a “disorderly movement”. If the yen continues to move closer to the symbolic 100 level, the rhetoric over this issue is likely to heat up.
USD/JPY Fundamentals
Wednesday (June 22)
- 22:00 Japanese Flash Manufacturing PMI. Estimate 48.2. Actual 47.8
Thursday (June 23)
- 8:30 US Unemployment Claims. Estimate 271K
- 9:45 US Flash Manufacturing PMI. Estimate 50.5
- 10:00 US New Home Sales. Estimate 561K
- 10:00 US CB Leading Index. Estimate 0.2%
- 10:30 US Natural Gas Storage. Estimate 59B
- 19:50 Japanese BoJ Summary of Opinions
- 19:50 Japanese SPPI. Estimate 0.1%
Upcoming Key Events
Friday (June 24)
- 8:30 US Core Durable Goods Orders. Estimate 0.1%
*Key events are in bold
*All release times are EDT
USD/JPY for Thursday, June 23, 2016
USD/JPY June 23 at 7:35 EDT
Open: 104.65 Low: 103.91 High: 105.86 Close: 105.70
USD/JPY Technicals
| S3 | S2 | S1 | R1 | R2 | R3 |
| 102.36 | 103.73 | 104.99 | 105.87 | 107.16 | 108.35 |
- USD/JPY was flat in the Asian session and has posted sharp gains in European trade
- 105.87 is under pressure and could break during the day
- 104.99 is providing support
- Current range: 104.99 to 105.87
Further levels in both directions:
- Below: 104.99, 103.73, 102.36 and 101.07
- Above: 105.87, 107.16 and 108.35
OANDA’s Open Positions Ratio
The USD/JPY ratio is showing gains in long positions on Thursday. Long positions have a strong majority (74%), indicative of trader bias towards USD/JPY continuing to move to higher ground.