Top Story

USD/JPY continues to surge on weak yen ahead of key economic events

USD/JPY has been in a sharp climb for the past two weeks, not due to any strength in the US dollar, but because of a pronounced weakening of the Japanese yen. This yen weakness has been due largely to a diminished demand for safe-haven assets like the yen, in a generally “risk-on” market environment mostly devoid of high-risk concerns. Barring any unexpected events on the horizon, this relative complacency is likely to extend the yen’s fall in the near-term, potentially further propping up USD/JPY.

Bullish support for USD/JPY could be even more pronounced if the US dollar responds positively to key economic events scheduled for the remainder of this week. On Wednesday, US employment numbers from ADP were released, showing that 177,000 private non-farm jobs were added in April, which was essentially in-line with prior expectations. Although the ADP report is often considered a precursor to the official non-farm payrolls (NFP) government data, however, it should be kept in mind that for March, ADP showed substantially better-than-expected numbers only to be followed by a colossal disappointment in the NFP (98,000 jobs added in March vs 175,000 expected).

Also on Wednesday, the ISM non-manufacturing (services) PMI data showed a healthy expansion in April at 57.5, better than the 56.1 expected and significantly higher than March’s 55.2 growth. April expansion in non-manufacturing employment was slightly slower but essentially in-line with the previous month at 51.4 vs March’s 51.6.

At this point, the data that has been released supports a relatively solid, but not particularly stellar, outcome for Friday’s NFP number. However, expectations for NFP are currently rather high at around 195,000 April jobs added. In addition, March’s disappointing 98,000 figure is expected by some to be revised higher.

Perhaps more pressing for the US dollar than Friday’s NFP, however, will be the FOMC policy statement scheduled to be released later on Wednesday. Futures markets are still pricing-in less than a 5% probability of a rate hike, which points to a very high likelihood that interest rates will be kept steady. Markets will be focused instead on any indications surrounding both the potential trajectory of rate increases going forward as well as the Fed’s recently-discussed intentions to shrink its massive balance sheet.

Meanwhile, price action continues to show strong bullish momentum for USD/JPY as the yen remains weak, even as the dollar itself has pulled back overall recently. The pair is currently trading above the 112-area, substantially higher than both its 50-day and 200-day moving averages. It is also approaching the upper border of a descending parallel trend channel that extends back to the January highs. If further bullish momentum results in a sustained breakout above this channel, USD/JPY could surge on a breakout extension towards a 115.00 resistance objective.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.