The greenback rallied against the yen following reports of lower-than-anticipated US unemployment claims and narrower-than-expected trade deficit data. Notably, Japan’s consumer confidence also improved in November. However, the market was focused on overwhelmingly positive news from the US. Overall, the USD/JPY pair rallied from a low of 132.40 to a high of 133.75 in the past 24 hours.
According to Japan’s Cabinet Office, the country’s consumer confidence improved to 30.30 in December from a two-and-a-half-year low of 28.60 recorded in November, which pleased economists who were expecting a further decline in consumer confidence to 28.20. The improvement is perceived as an outcome of the removal of all restrictions related to Covid-19.
All components of household sentiment recorded an improvement. While the overall livelihood index improved by 0.90 points (on a m-o-m basis) to 27.40 in December, the income growth index rose by 0.90 points to 35.10 in the same period. The employment index grew by 2.60 points to 35. Also, the willingness to purchase increased by 2.30 points to 23.70.
According to the US Department of Labor, the country’s first-time unemployment claims fell to 204,000 in the week ended December 31 from 223,000 (downwardly revised from 225,000) in the earlier week, which pleased economists who were expecting an increase in the jobless claims to 230,000.
The four-week moving average was 213,750, a decline of 6,750 from 220,500 (downwardly amended from 221,000) in the earlier week.
According to the US Bureau of Economic Analysis, the country’s trade deficit narrowed to $61.50 billion in November from $77.80 billion in October. The reported figure was better than the $64.20 billion deficit forecast by economists.
The narrowing of the trade deficit reflected a decline in the goods deficit of $15.30 billion to $84.10 billion and a rise in the services surplus of $1 billion to $22.50 billion. Exports were $251.90 billion in November, a decrease of $5.10 billion from October.
Specifically, exports of goods fell by $5.30 billion to $170.80 billion in November. Under goods exports, industrial supplies and materials recorded a decline of $3.60 billion. Capital goods posted a fall of $1.30 billion. Consumer goods grew by $0.90 billion. Exports of services rose by $0.20 billion to $81 billion in November.
Likewise, imports stood at $313.40 billion, down $21.50 billion from October. In particular, imports of goods declined by $20.70 billion to $254.90 billion in November. Consumer goods posted a drop of $8.80 billion. Also, industrial supplies and materials recorded a decline of $3.70 billion. While automotive vehicles, parts, and engines fell by $3.30 billion, capital goods reported a drop of $3 billion. Imports of services dropped by $0.8 billion to $58.5 billion in November.
The narrowing of the US trade deficit and improvement in Japan’s consumer confidence is expected to keep the USD/JPY pair range bound in the short term.
The historical price chart indicates that the USD/JPY pair is rising after testing the support at 130.55. The next resistance is anticipated only near 137.55. Additionally, the USD/JPY pair is trading above its 50-day moving average while the stochastic indicator is in the bullish zone. Therefore, we anticipate the currency pair to remain in an uptrend in the days ahead.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
