USD/JPY Daily Fundamental Analysis for July 21, 2011

The USD/JPY pair retreated early Wednesday, as the Japanese yen found more buyers against the dollar and other major currencies due to the uncertainty in the financial market, which increased demand for safer investments.

Despite the improvement in the U.S. and Asian stock market, traders seem to be more cautious, where lower yielding currencies still have their appeal especially with the absence of any improvement in the market sentiment.

President Barak Obama cleared on Tuesday that U.S. lawmakers are looking forward to adopting a $3.7 trillion debt-cutting plan, including spending cuts and tax increases.

The broad bourses acted well after Obama’s announcement, giving traders a chance to cover some of their previous losses. Meanwhile, major currencies were not able to benefit from the stock market rebound, as jitters prevail till the debt ceiling decision is made.

On Thursday at 23:50 GMT (Wednesday), Japan will release the Merchandise Trade Balance for June, where the deficit is expected to narrow to 175.3 billion yen from the previous deficit of 853.7 billion yen.

The Adjusted Merchandise Trade Balance deficit is also expected to narrow to 282.2 billion yen from -474.6 billion yen. Exports had a previous reading of –10.3 and expected to improve to – 4.7. As for the annual Merchandise Trade Import it’s expected to come at 11.1 from the previous 12.3.

At 04:30 GMT Japan will release All Industry Activity Index for May which is expected to rise 1.8% following 1.5%.

At 12:30 GMT, 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 last week to 405 thousand.

The U.S. house price index for July will be released at 14:00 GMT, and it had a prior reading of 0.8%. While the Leading Indicators for July is expected to come at 0.2% from the previous 0.8%.

The Philadelphia Fed Index for July will be published at 14:00 GMT with a prior reading of –7.7 and expected to come at 4.5.

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