Yen Searches for Direction Amidst Mixed Signals

Yen Searches for Direction Amidst Mixed Signals

As monetary policy debates, news cycles and data releases have continued to provide mixed signals for both global and local economies, the Yen has continued to range back and forth between levels that have been established over several weeks. Today, on the day the US makes a widely anticipated announcement of Q2 GDP, the USDJPY pair finds itself in the middle of that multi month range.

Yen Searches for Direction Amidst Mixed Signals
Yen Searches for Direction Amidst Mixed Signals Getty Images

The Yen recently enjoyed some favorable winds over the previous day as CPI and employment data was released and received favorably by markets. The labor force participation rate was up marginally, unemployment fell below 3.0% and the CPI benchmark, which is the target inflation indicator for Japan, held the line at 0.4% y/y in June. The inflation level was the highest in two years and in line with expectations.

Under normal conditions, this narrative would provide a proper backdrop for a bullish stance on any currency. However, these conditions are anything but normal. The bullishness brought on by better employment and inflation data is quickly countered by extremely dovish monetary policy and quantitative easing in Japan.

Yen Searches for Direction Amidst Mixed Signals

The competing economic forces that are battling it out in Japan, easy money versus solid fundamentals, explain the changing directions we have seen over the medium term in the Yen.

Further complicating things, the Dollar has weakened amid political drama, rate speculation and mixed data releases. In short, we essentially have two currencies that are weakening on a relative basis but both persist in sending mixed messages that could indicate a stronger turn. For the US, the support for bulls has been in the form of rate expectations while yen bulls could point to the glimmers of hope provided by the economic data.

With respect to potential directional signals that could provide guidance, one of the strongest correlations with the USDJPY pair is with US 10 Year rates, and as those rates have bounced around over the near term, so has Dollar/Yen.

Yen Searches for Direction Amidst Mixed SignalsYen Searches for Direction Amidst Mixed Signals

 

 

We saw a mild jump in yields overnight and we’d expect to see structural support in the pair as a result over today as well.

Yen Searches for Direction Amidst Mixed Signals

In the short term, with a US GDP release this morning that is in line or above expectations, we could see a meaningful strengthening in USDJPY which could provide the basis for a new direction and a break above the clouds on an Ichimoku chart off current support levels, which also provides a “double bottom” with lows earlier in the month and a correction to the trend in a lower price we had seen over the last week.

The information contained above may have been prepared by independent third parties contracted by Nadex. In addition to the disclaimer below, the material on this page is for informational and educational purposes only and should not be considered an offer or solicitation to buy or sell any financial instrument on Nadex or elsewhere. Please note, exchange fees may not be included in all examples provided. View the current Nadex fee schedule. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representations or warranties are given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk and any trading decisions that you make are solely your responsibility Trading on Nadex involves financial risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results. Nadex instruments include forex, stock indexes, commodity futures, and economic events.

Nadex binary options and spreads can be volatile and investors risk losing their investment on any given transaction. However, the limited-risk nature of Nadex contracts ensures investors cannot lose more than the cost to enter the transaction. Nadex is subject to U.S. regulatory oversight by the CFTC.