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Market Analysis

Fundamental Analysis: Yen Flat against Most Majors

March 07, 2019
BY Michael Stark

The yen is mostly unchanged against major currencies in today’s trading so far with the Nikkei flat and a lack of significant data. Traders are looking ahead to the ECB’s meeting this afternoon and tomorrow’s NFP.

Dollar-yen made a small overall gain this morning to ¥111.70, negligibly below Monday’s opening. EURJPY and GBPJPY also moved up very slightly although volatility has been higher for the latter. Meanwhile AUDJPY has bounced slightly as expected to ¥78.70.

Slow week for the yen ahead of major news

The lack of significant data from Japan has kept the yen’s fundamentals basically unchanged this week. Data from other countries like the USA and the UK hasn’t given much direction to the base currencies in yen pairs either. Only against the Australian dollar has the yen strengthened significantly this week, and this was mainly due to the significantly worse GDP release from Australia yesterday morning.

The two key fundamental factors affecting JPY to some extent today are trade talks and shares. Ongoing positivity on a good outcome from the final stages of Sino-American talks is a negative factor for the yen as a haven. On the other hand, the Nikkei 225 has retreated somewhat since Monday from three-month highs.

ECB and NFP: gearing up for the main events

News and data today and tomorrow are likely to bring much more activity for pairs with the yen. First up is the meeting, rate decision and press conference at the European Central Bank. Then there’s the all-important non-farm payrolls tomorrow afternoon.

On the whole, the ECB is expected to be somewhat dovish at this afternoon’s meeting. Generally lukewarm data from the eurozone and on average lower inflation are likely to lead to Dr Draghi continuing his familiar ‘wait and see’ comments. Nevertheless, traders should be prepared for surprises one way or the other.

Tomorrow is a very important day in data for dollar-yen. Firstly there’s Japanese GDP data, which is likely to affect yen pairs beyond only USDJPY. The current prediction of a slight gain would be a significant positive for JPY if true. Data on household spending and current account are also important for yen pairs.

The NFP itself is the most important of all economic releases. The consensus of 180-190k is significantly lower than last month’s strong 304,000. Given the large fluctuations of recent NFP releases from both the previous figures and predictions, traders should be cautious around the time of the release at 13.30 GMT tomorrow.

Yen’s direction unclear and dependent on data

No particular direction is favorable for the yen against most majors because of the high importance of the news today and tomorrow. Perhaps the best conjecture is small losses for JPY if predictions are generally accurate.

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