USD/JPY – Yen Rally Pauses as Markets Closed for Holiday

USD/JPY is almost unchanged on Monday, as the pair trades at 106.50 in the European session. On the release front, manufacturing indicators are the focus at the start of the trading week. In Japan, Final Manufacturing PMI continued to lose ground, dropping to 48.2 points in April. This marked a second straight reading below the 50 line, pointing to contraction in the manufacturing sector. Over in the US, today’s highlight is ISM Manufacturing PMI. The estimate stands at 51.6 points. Japanese markets are closed for a holiday, so we’re unlikely to see much movement from the pair in the Monday session.

The Bank of Japan surprised the markets last week, holding off from further easing at its Wednesday policy meeting. The yen surged on Thursday and Friday, gaining 500 points in response. USD/JPY is currently trading close to its lowest level since mid-October 2015. The BoJ left unchanged its 80 trillion yen for expanding the monetary base and the 0.1% negative rate on some bank funds held by the central bank. The BoJ also postponed its time frame for its target of 2 percent inflation until 2017. In remaining on the sidelines, the BoJ sent a message that it won’t be rushed into more monetary action and will any further easing will be data-dependent. The BoJ remains concerned about the strengthening yen, but may have concluded that there is little it can do to stop the currency from breaking below the symbolic 100 level, which last occurred in November 2013.

US GDP climbed 0.5% in the first quarter, shy of the estimate of 0.7%. This was considerably lower than the 1.4% gain in the fourth quarter of 2015, and marked the weakest quarter of growth in two years. Although economic growth remains moderate, the lukewarm reading will not help the cause of Fed policymakers who favor a rate hike, especially with inflation at low levels. The markets, which were not expecting an April hike, are keeping a close eye on key numbers, looking for clues as to whether the Fed will make a move at its June policy meeting. The April policy statement sounded cautiously optimistic about the US economy, but did not provide any clues about a hike in June.

One sore spot in the US economy remains the manufacturing sector. Last week, Core Durable Goods dropped 0.2%, well off the estimate of a 0.6% gain. This marked the fourth decline in five months. Durable Goods Orders was stronger at 0.8%, but also missed expectations, as the estimate stood at 1.9%. Recent manufacturing reports, such as the Philly Fed Manufacturing Index have also been soft, as the industry has been hard-hit by weak global demand and a downturn in the US oil industry due to low crude prices. We’ll get a look at the ISM Manufacturing Index later on Monday.

 

USD/JPY Fundamentals

Sunday (May 1)

• 10:00 Japanese Final Manufacturing PMI. Estimate 48.0. Actual 48.2

Monday (May 2)

• 13:45 US Final Manufacturing PMI. Estimate 51.0

• 14:00 ISM Manufacturing PMI. Estimate 51.6 points

• 14:00 US Construction Spending. Estimate 0.5%

• 14:00 ISM Manufacturing Prices. Estimate 51.0

• Tentative – US Loan Officer Survey

 

 

 

 

 

 

USD/JPY Technical

S3	S2	S1	R1	R2	R3
104.12	105.18	106.19	107.57	108.37	109.87

 

 

 

 

 

 

 

• USD/JPY has been drifting in Monday’s Asian and European sessions

• 106.19 is providing weak support, following strong losses by USD/JPY on Friday

• There is resistance at 107.57

• Current range: 106.19 to 107.57

Further levels in both directions:

• Below: 106.19, 105.18 and 104.12

• Above: 107.57, 108.37, 109.87 and 110.66