Yesterday’s trade saw USD/JPY within the range of 123.04-123.81. The pair closed at 123.56, up 0.25% on a daily basis, which followed three consecutive trading days of losses. The daily gain has been the largest one since July 16th, when the cross appreciated 0.31%.
At 9:12 GMT today USD/JPY was up 0.03% for the day to trade at 123.60. The pair touched a daily high at 123.74 at 7:45 GMT, while being very close to the range resistance level (R3).
Today the cross may be influenced by a number of macroeconomic reports and other events as listed below.
Fundamentals
United States
Pending Home Sales
The index of pending home sales in the United States probably rose 1.0% in June compared to May, when sales were up at a monthly pace of 0.9%. The latter has been the most modest monthly increase since November 2014, when a rate of 0.6% was recorded.
In annual terms, the index of pending home sales rose 8.3% in May, or at the slowest rate since December 2014, when a climb rate of 6.1% was reported.
When a sales contract is accepted for a property, it is recorded as a pending home sale. As an indicator the index provides information on the number of future home sales, which are in the pipeline. It gathers data from real estate agents and brokers at the point of a sale of contract and is currently the most accurate indicator regarding US housing sector. It samples over 20% of the market. In addition, over 80% of pending house sales are converted to actual home sales within 2 or 3 months. Therefore, this index has a predictive value about actual home sales.
Although there are some cancellations, there are not enough for the data to be skewed one way or another. The base value of the index is equal to 100, while the base year is 2001, when there has been a high level of home sales.
In case pending home sales increased more than anticipated, this would have a moderate bullish effect on the greenback. The National Association of Realtor’s (NAR) will release the official index value at 14:00 GMT.
FOMC decision on monetary policy
The Federal Open Market Committee (FOMC) will probably keep its benchmark interest rate unchanged within the range 0%-0.25% for a 52nd consecutive meeting, after the Quantitative Easing cycle has ended, according to the median forecast by experts.
During her testimony before the Committee on Financial Services, U.S. House of Representatives in Washington D.C. Federal Reserve Chair Janet Yellen noted that the outlook for the US economy remains favorable, which could be taken as an indication that a rate hike may occur at some time this year. According to extracts from Yellens testimony: “Looking forward, prospects are favorable for further improvement in the U.S. labor market and the economy more broadly. Low oil prices and ongoing employment gains should continue to bolster consumer spending, financial conditions generally remain supportive of growth, and the highly accommodative monetary policies abroad should work to strengthen global growth. In addition, some of the headwinds restraining economic growth, including the effects of dollar appreciation on net exports and the effect of lower oil prices on capital spending, should diminish over time. As a result, the FOMC expects U.S. GDP growth to strengthen over the remainder of this year and the unemployment rate to decline gradually.”
“In its most recent statement, the FOMC again noted that it judged it would be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. The Committee will determine the timing of the initial increase in the federal funds rate on a meeting-by-meeting basis, depending on its assessment of realized and expected progress toward its objectives of maximum employment and 2 percent inflation.”
“Indeed, most participants in June projected that an increase in the federal funds target range would likely become appropriate before year-end. But let me emphasize again that these are projections based on the anticipated path of the economy, not statements of intent to raise rates at any particular time.”
”My own outlook for the economy and inflation is broadly consistent with the central tendency of the projections submitted by FOMC participants at the time of our June meeting. Based on my outlook, I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy.”, Yellen said in a speech at the City Club of Cleveland, ”But I want to emphasize that the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step. We will be watching carefully to see if there is continued improvement in labor market conditions, and we will need to be reasonably confident that inflation will move back to 2 percent in the next few years.”
The minutes from Feds policy meeting held on June 16th-17th revealed that US economy is expanding at a sufficiently strong pace, so that it could support an increase in the benchmark rate. According to an extracts from the June minutes: “…economic activity has been expanding moderately after having changed little during the first quarter. The pace of job gains picked up while the unemployment rate remained steady. On balance, a range of labor market indicators suggests that underutilization of labor resources diminished somewhat. Growth in household spending has been moderate and the housing sector has shown some improvement; however, business fixed investment and net exports stayed soft. Inflation continued to run below the Committees longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports; energy prices appear to have stabilized. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.”
”When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”
The FOMC will announce its official decision on policy at 18:00 GMT. A rate hike would surely boost demand for the US dollar.
Japan
Industrial Output
The preliminary estimate of the index of industrial production in Japan probably showed a 0.3% expansion in June compared to a month ago, following a 2.1% drop in May, according to final data released on July 13th. The latter has been the sharpest monthly decline since February, when production shrank at a pace of 3.1%.
Annualized industrial output contracted at a pace of 3.9% in May, according to final data, or the most since June 2013, when production dropped at an annualized rate of 4.6%.
The index, reflecting business cycle, measures the change in overall inflation-adjusted value of output in sectors such as manufacturing, mining and utilities. In case industrial output expanded more than anticipated, this would provide a moderate support to the Japanese yen. The Ministry of Economy, Trade and Industry is to publish the official industrial data at 23:50 GMT.
Bond Yield Spread
The yield on Japanese 2-year government bonds went as high as 0.010% on July 28th, or the highest level since July 23rd (0.010%), after which it closed at the same level to gain 0.004 percentage point on a daily basis.
The yield on US 2-year government bonds climbed as high as 0.692% on July 28th, or the highest level since July 24th (0.707%), after which it closed at the same level to gain 3.8 basis points (0.038 percentage point) for the day.
The spread between 2-year US and 2-year Japanese bond yields, which reflects the flow of funds in a short term, expanded to 0.682% on July 28th from 0.644% during the prior day. The July 28th spread has been the most notable one since July 23rd, when the difference was 0.699%.
Meanwhile, the yield on Japan’s 10-year government bonds soared as high as 0.412% on July 28th, after which it slid to 0.410% at the close to lose 0.002 percentage point compared to July 27th, while marking a third straight day of decline.
The yield on US 10-year government bonds climbed as high as 2.266% on July 28th, after which it slipped to 2.259% at the close to add 4.3 basis points (0.043 percentage point) on a daily basis, while marking the first gain in the past six trading days.
The spread between 10-year US and 10-year Japanese bond yields expanded to 1.849% on July 28th from 1.809% during the prior day. The July 28th yield difference has been the largest one since July 23rd, when the spread was 1.859%.
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for USD/JPY are presented as follows:
R1 – 123.63
R2 – 123.70
R3 (range resistance – green on the 30-minute chart) – 123.77
R4 (range breakout – red on the 30-minute chart) – 123.98
S1 – 123.49
S2 – 123.42
S3 (range support – green on the 30-minute chart) – 123.35
S4 (range breakout – red on the 30-minute chart) – 123.14
By using the traditional method of calculation, the weekly pivot levels for USD/JPY are presented as follows:
Central Pivot Point – 123.96
R1 – 124.37
R2 – 124.93
R3 – 125.34
S1 – 123.40
S2 – 122.99
S3 – 122.43
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