On Friday, investors rushed to buy safe haven assets, shedding their holdings of risky assets as the figures for the US labor market came in worse than expected. Most analysts were projecting the non-farm employment to increase by 97,000 people, but instead it only rose by 80,000. Sentiment across investors, which was lifted the previous day when the ECB cut its benchmark rate by a quarter of a percentage and set its deposit rate to zero for the first time in its history, took a severe blow and as a result all major U.S. Indexes declined for the rest of the day. Market participants were looking for safe haven assets, so they bought yens and dollars, but, as the bad news were pertaining to the U.S. economy, the Japanese currency was the preferred investment. As a result the USDJPY dropped after having a relatively choppy morning session. The currency pair tried to push decisively above the key resistance at 80.00, but failed to do so and when the news were released it dropped significantly, pushing both below its 25-period and its 50-period moving averages. The USD/JPY finished the session at 79.65 after trading as low as 79.47 earlier on.
Today, the yen is trading in close range, after touching lows of 79.38 earlier in the session. These lows we reached when the data for the Japanese manufacturing and services sectors were announced. The figures came in better than expected, which boosted the demand for the lower-yielding currency. The Tankan manufacturing index improved to -1 from a reading of -4 for the month of May. Analysts were projecting the index to remain unchanged. The Tankan non-manufacturing index also improved, coming at 8. Economists’ expectations consolidated around a reading of 6. The demand for the yen was also helped by the continuing sell-off in equities. But when the USD/JPY approached its 200-period moving average the bears gave way to the bulls, which pushed the currency pair back to its 50-period moving average around 79.67. In the last couple of hours we tried to push above the resistance at this 50-period moving average, but we failed to do so and the dollar is currently changing hands at 79.66 yens. Oscillators are mixed with the relative strength index in mid-range at 49 and the stochastic moving around the lower band of its range around 35. The volatility in the MACD remains at record low levels with the indicator trading very close to the key 0 level.
Investors, who intend to benefit from the swings in the currency pair, should watch carefully the data that is scheduled to be released for the Japanese economy later in the week. Tomorrow we have the tertiary industry activity figures being announced and economists are expecting the total value of services, purchased by business to have increased by 0.2% as compared to a decline of 0.3% for the month of May. Thursday, is the most important day for the yen as Bank of Japan will hold its meeting then, after which the overnight call rate will be announced. Analysts are expecting no change to the current 0.1% rate. What is even more important is the monetary statement of the Japanese central bank as it will provide some clues about any further measures aimed at supping the growth in the third largest economy in the world.
The information in this analysis is collected from different sources and should serve for informative purposes only. The author shall not be held responsible for the validity of the presented information. No part of this analysis recommends the purchase or sale of a currency pair or any other financial instrument.