The dollar gained ground against the yen on upbeat Wall Street earnings and diminished global appetites for safe-haven assets such as the yen. All the three major Wall Street indexes rose by over 2% as blue-chip companies reported strong earnings, indicating that the US economic recovery is marching ahead, despite rising interest rates and global trade war tensions. The data also reflects a sharp slowdown in momentum in the third quarter.
Industrial production and JOLTS data
For the fourth successive month, US industrial production recorded an increase, assisted by gains in manufacturing and mining output, but momentum moderated strongly in the third quarter.
The Federal Reserve stated yesterday that industrial production grew 0.3% in September, following a 0.4% increase in August. In the third quarter, industrial output rose at an annualized rate of 3.3%, after accelerating at a 5.3% pace in 2Q18.
The Fed explained that September industrial output was “slightly” affected by Hurricane Florence, which soaked South and North Carolina in mid-September. The central bank has measured the storm impact on industrial production to be “less than 0.1 percentage point.”
Manufacturing output rose 0.2% in September, compared with the 0.3% increase in the earlier month. A 1.7% increase in motor vehicle production assisted in lifting manufacturing output in the previous month.
Additionally, a strong rise in the production of primary metals, machinery, and wood products also increased manufacturing output. Manufacturing represents nearly 12% of the economy and the sector is currently well supported by the robust domestic economy.
The Federal Reserve also stated that capacity utilization, which the extent to which a firm uses its resources, for the industrial sector was unchanged at 78.1%, just 1.7% below the 1972-2017 average.
In other data released, the Bureau of Labor Statistics stated that job openings reached a record high in August, suggesting companies could start seeing higher inflationary pressures ahead due to the tight labor market.
The JOLTS data indicated that the number of vacancies reached 7.14 million for August. Federal Reserve officials closely watch the data for hints about the job market scenario. Nearly 5.78 million candidates were employed in the same period.
The number of workers looking for work stood at 6.23 million for August, but declined to 5.96 million in September, according to the data published by Labor Department. The JOLTS survey, which began in December 2000, lags the government’s nonfarm payrolls count by a month.
Commenting on the job data Julia Pollak, a labor economist at online employment marketplace ZipRecruiter said: “The fact that record numbers of workers are voluntarily quitting their jobs suggests that they are finding substantially better opportunities elsewhere in the economy.”
The strong gains recorded by the US markets have considerably decreased the demand for safe-haven assets such as the yen.
Stuart Ritson, portfolio manager, emerging markets debt at Aviva Investors said: “The rebound in global sentiment has taken the appreciation pressure off the yen.”
Fundamentally, the strong economic data is expected to propel the USDJPY pair in the days to come.
Technically, the USDJPY pair is moving within an ascending channel as shown in the image below. Furthermore, the RSI indicator’s reading is over 50, confirming the underlying bullishness. As a result, we can expect the USDJPY pair to move up in the short-term.
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