Trading Overview: US dollar vs. Japanese Yen (USD/JPY)
10:30 AM (EST) Update
After the massive crash of China on August 24th amid low liquidity, the Dollar - Yen dancing couple dropped to a new range as Mr. Japanese Yen became the safe haven of Asia. Over two weeks has passed and we'd like to catch up with the pair and see how they are doing romantically, economically, technically and emotionally. So gear for a dramatic episode of Bachelor in Paradise! Uh, I mean, currency pair analysis.
Bank of Japan still open to further easing?
We had a bunch of economic data released on today's Asian session, including the Japanese consumer confidence index which ticked up from 40.3 to 41.7 in August. While normally this would lead to more strength for Mr. Japanese Yen, he faced a massive drag on the forex dance floor which could be a result of a certain Bank of Japan (BOJ) official.
BOJ policymaker Sayuri Shirai remarked that it’s important to maintain an accommodative monetary environment on Wednesday. Keep in mind that forex traders have been on the lookout for potential easing clues, especially after the ECB shared a dovish bias in their recent statement. So no wonder they took this as a hint for a weaker Japanese Yen.
Japan's Economy Has Faced a Bump
From GDP, to business confidence and inflation, Japan's economic growth seems to be in trouble.
Japan’s preliminary Q2 2015 GDP contracted by 0.4% quarter-on-quarter, but the previous quarter’s reading was significantly upgraded from +0.6% to +1.0, so it ain’t too bad.
With regards to unemployment, after ticking higher to 3.4% back in June, Japan’s seasonally-adjusted jobless rate dipped back into 3.3% in July. While this looks good on the surface, digging deeper into the report paints a different picture since the number of unemployed people actually stayed roughly the same at 2.20 million (2.22 million previous), but Japan’s labor force participation rate dropped to 59.6% (60.0% previous), so the decline in the jobless rate was just due to more people leaving the labor force altogether rather than fewer unemployed people or more people getting jobs.
Japanese businesses didn’t get a break either since total industrial production in July slowed by 0.6% (+2.3%) on a monthly basis, which is the first decline in two months.
To add salt to injury, July’s headline inflation reading also sank lower to 0.2% from 0.4% previously, with the core reading sinking lower to 0.0% from 0.1% previously.
Overall, the most recent economic gossip shows that Japan’s recovery encountered a major road bump, especially with regard to inflation and GDP growth. So Japan's fundamentals is pointing to a weaker Japanese yen and therefore gains for the USD/JPY pair. But wait, there are 4 more points to the Invest Diva Diamond Analysis. Keep on reading!
US Economy Maintains Slow Growth
The August Non Farm Payrolls (NFP) reading turned out to be a disappointment, as the U.S. economy added only 173,000 jobs during the month instead of the projected 225,000 increase. However, as covered in my previous update, the labor situation may not be as dismal as the headline figures suggest.
All eyes are now on this weeks unemployment claims on Thursday and the Producer Price Index (PPI) reading on Friday for more clues on Ms. USA's forex dance moves.
After the USD/JPY pair touched down a key support level far far away on the forex dance floor (116) on August 24th market panic, it seems to be looking for a way back up to the previous levels of 124. The truth? It ain't easy. From what we know from the pair's characteristics, they love to dance in a range after finding a "comfort zone." And boy oh boy, have they found a new comfort zone! Getting a little help from our friend Mr. Fibonacci, it appears that the pair could continue dancing between the 23% and 61% Fibo levels until it finds a way to escape; say Japan's quantitative easing or US interest rate hike or something.
On the daily chart, it is safe to say that Ichimoku indicator is not reliable at the moment, however shorter time frames such as 4 hour charts could get a tip or two from Mr. Ichimoku (i.e. consolidation with a chance of bull.)
The pair broke above a previously identified triangle pattern and we could see up moves towards 121.65 and 123 in extension. Support levels are set at 119.50 and 118.20.
Supports and resistance levels
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*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.