The USD/JPY pair advanced to its highest level in three weeks, as the risk appetite dominated the FX market with good global macroeconomic data and eased worries over the outlook for Europe with successful bond sales.
Investors returned to take some risk sending major equity indices to record more gains, while safe haven currencies paid the price and dropped against other majors.
The current market sentiment shifted to riskier assets, as the recent data from the U.S. economy and China supported the idea that the ongoing recovery in the major economies will balance the negative affect of the EU debt crisis.
The Bank of Japan will announce its interest rate decision with the beginning of the week, where the central bank will be happy with current drop in the Japanese currency, while the ongoing EU debt crisis and uncertain outlook for the global economy will keep the BoJ cautious.
Also the Federal Reserve Bank will announce its FOMC decision, with expectations of further stability in the bank’s monetary policy especially after the unexpected performance of the manufacturing sector in addition to stable inflation pressures.
The USD/JPY pair is expected to continue the upside over the short-term, while any intervention from the BoJ will have its toll on the pair’s movements and could easily confirm the upside move over the coming period.
Major highlights for this week that will affect the USD/JPY pair’s trading:
Monday January 23:
On Monday, both economies will not release any fundamentals, where the pair’s movements will depend on the market sentiment.
Tuesday January 24:
On Tuesday at 04:00 GMT, the Bank of Japan will conclude its first meeting this year, where it’s expected that the BOJ will keep its interest rate unchanged while the stimulus programs could witness some adjustments.
At 15:00 GMT, the U.S. economy will issue the Richmond Fed Manufacturing Index for January, where it’s expected at 5.0 from the previous reading of 3.0.
Wednesday January 25:
On Wednesday at 23:50 GMT (Tuesday), Japan will release the Merchandise Trade Balance for December, where it’s expected to show a deficit of 154.9 billion yen narrowing from the previous deficit of 684.7 billion yen.
The Adjusted Merchandise Trade Balance is expected to show a deficit of 376.5 billion yen also narrowing from the previous deficit of 537.9 billion yen.
Exports are expected with 7.4% drop on the year deepening the drop from the previous month when it fell 4.5%. Imports are expected with 8.0% rise after 11.4% rise the previous month.
The U.S. economy will report the House Price Index for November which had a previous reading of –0.2%. On the other hand, the Pending Home Sales for December is expected with 1.0% rise slowing from the previous month’s surge of 7.3%.
At 17:30 GMT, the Federal Reserve Bank will announce its Open Market Committee monetary decision, where it’s expected that the central bank will keep its interest rate near zero and the monetary policy unchanged.
Thursday January 26:
On Thursday at 13:30 GMT, the U.S. economy will release the Durable Goods Orders for December, where it’s expected at 2.0% from the prior reading of 3.8%. While the Durables Exclude Transportation had a previous reading of 0.3% expected at 1.0%.
At 13:30 GMT, the U.S. economy will release the weekly initial claims numbers, where the number of people filing for first-time claims for the state unemployment insurance dropped to 352 thousand last week.
The U.S. Leading Indicators for December will be released at 15:00 GMT, with a previous reading of 0.5% and expected to come at 0.7%.
On the other hand, the New Home Sales for December is expected to come at 1.6% in line with the prior reading.
Friday January 27:
On Friday at 23:30 GMT (Thursday), Japan will release the National Consumer Price Index for December, where it’s expected to drop 0.2% from the prior reading of –0.5%, while the National Consumer Price Index excluding fresh food is expected to come at -0.1% from –0.2%.
At 23:50 GMT, the Japanese Retail Trade for December will be released with a prior reading of 0.4% and expected to come at -2.1%, while the annual reading has a prior reading of –2.3% and expected to come at 0.4%.
The U.S. economy will release the annualized Gross Domestic Product for the fourth quarter at 13:30 GMT, where the U.S. economy is expected to have expanded at a stronger pace of 3.0% from the previous 1.8%.
The Core Personal Consumption Expenditure for the fourth quarter is expected to come at 0.9% from the previous 2.1%, while the fourth quarter Personal Consumption is expected to come at 2.3% from the previous 1.7%.
The University of Michigan Confidence for January will be released at 14:55 GMT, with a previous reading of 74 and expected to be revised slightly to 73.9.