The Japanese yen is showing little movement on Friday, as USD/JPY remains within striking distance of the symbolic 100 level. In the European session, USD/JPY is trading at 100.60.
On the release front, Japanese Current Account dropped to JPY 1.42 trillion, short of expectations. In the US, employment indicators will be in the spotlight, with the release of three key events – Nonfarm Payrolls, Average Hourly Earnings and the Unemployment Rate. Any unexpected readings could lead to volatility from USD/JPY.
Japanese Current Account disappointed on Thursday. The surplus dropped to JPY 1.41 trillion in May, the weakest reading since September 2015. The figure was also well off the forecast of JPY 1.52 trillion.
Still, the Japanese yen shrugged off the soft release. The strong yen has taken advantage of the Brexit referendum, which saw Britain vote to exit the European Union. The yen has posted strong gains of 3.5 percent since Brexit, as jittery investors have dumped risk assets in favor of the safe-haven Japanese currency.
Brexit aftershocks are far from over, as underscored by the woeful British pound, which is struggling at 30-year lows. With risk sentiment decidedly negative, the yen could break below the symbolic 100 level, which last occurred just after the Brexit vote in late June.
Although the Bank of Japan has been reluctant to adopt further easing measures, it may have to act in order to curb a streaking yen which is hurting the export sector. Japanese officials have repeatedly warned against what they have termed “currency manipulations” and have threatened to intervene if the yen continues to move higher. We can expect more hawkish statements out of Japan if the yen breaks below the key 100-level.
US job data looked impressive on Thursday. ADP Nonfarm Employment Change was almost unchanged in June, with a reading of 172 thousand. This figure was well above the forecast of 158 thousand.
This was followed by a solid unemployment claims release, as the indicator dropped to 254 thousand, marking an 11-week low.
All eyes are now on the official Nonfarm Payrolls report which will be released on Friday. A strong release would confirm that the labor market is improving and job creation is gaining steam. The markets will also be keeping a close look at the unemployment rate and Average Hourly wages, which will be released later today.
There were no surprises in the Federal Reserve minutes, released earlier this week. In the June policy meeting, policymakers expressed concerns about a slowdown and hiring and the health of the US economy, and the underlying tone was one of prudence and caution.
The June meeting took place just one week before the Brexit referendum vote, and in the minutes showed that Fed policymakers adopted a “wait and see” attitude about Brexit. The vote by Britain to leave the EU stunned the markets, causing turmoil in the markets and sending bond yields to record lows. The minutes indicated that Fed members projected two rate increases before the end of the year, but that forecast is likely out-of-date following the shock waves from the Brexit earthquake.
Given the current economic climate, the markets are pessimistic about any rates moves before 2017. Investors have priced in no chance of a rate increase at the next Fed meeting on July 26-27, and just an eight percent chance of a hike in 2016. However, if US employment and inflation numbers improve in the second half of the year, the likelihood of a rate hike will certainly increase.
USD/JPY Fundamentals
Thursday (July 7)
19:50 Japanese Current Account. Estimate 1.52T. Actual 1.41T
Friday (July 8)
- 8:30 US Average Hourly Earnings. Estimate 0.2%
- 8:30 US Nonfarm Employment Change. Estimate 175K
- 8:30 US Unemployment Rate. Estimate 4.8%
- 15:00 US Consumer Credit. Estimate 16.7B
*Key events are in bold
*All release times are EDT
USD/JPY for Friday, July 8, 2016
USD/JPY July 8 at 4:35 EDT
Open: 100.76 Low: 100.22 High: 100.97 Close: 100.65
USD/JPY Technical
| S3 | S2 | S1 | R1 | R2 | R3 |
| 97.78 | 98.88 | 99.71 | 101.07 | 102.36 | 103.73 |
- USD/JPY posted losses in the Asian session but has recovered in European trade
- 0.9971 is providing support
- 101.07 is a weak resistance line
- Current range: 99.71 to 101.07
Further levels in both directions:
- Below: 99.71, 98.88 and 97.78
- Above: 101.07, 102.36, 103.73 and 104.99
OANDA’s Open Positions Ratio
The USD/JPY ratio is almost unchanged on Friday, consistent with the lack of movement from USD/JPY. Long positions retain a strong majority (69%), indicative of trader bias towards USD/JPY breaking out and moving higher.