The Japanese yen started declining against the greenback yesterday after the US retail sales data for January indicated a rebound. From a low of 110.95, the USD/JPY pair rose to a high of 111.40. However, the greenback was unable to sustain at those levels as Theresa May, the Prime Minister of the UK faced a humiliating defeat in the Parliament.
With the rejection of the second Brexit plan, the UK is on the verge of exiting the EU without any deal in place. The uncertainty once again strengthened the yen, with the USD/JPY pair hitting a low of 111.10 early this morning. However, the pair reversed abruptly as weak Japanese core machine orders dominated traders’ decisions in the Asian session. At the time of writing this article, the currency pair was trading at 111.34.
Yen moves zig-zag as global uncertainty and economic data takes control alternatively
The US Commerce Department reported an unexpected increase in January retail sales, mainly due to a sharp rise in demand for building materials and discretionary spending. Retail sales grew 0.2% m-o-m in January, compared with a decline of 1.6% in the previous month.
Analysts had expected no change in US retail sales. Notably, on a y-o-y basis, sales increased by 2.3% in January. The upbeat US retail sales data strengthened the USD/JPY pair earlier yesterday. However, Brexit-related developments reversed the trend during the European session yesterday.
In the UK, following the rejection of the second Brexit plan, the lawmakers will vote today on a motion to avoid a no-deal scenario. In this regard, to prevent a split of the Conservative party, May has accepted a free vote. This implies the legislators need not tow the government’s stand. Only 15 days are left for the UK to exit the EU.
Enterprises, individuals, economists, and even lawmakers are concerned about the possible damage to the UK’s economy due to a no-deal Brexit. Economists have warned that a no-deal Brexit could result in panic stockpiling of groceries and medicines. A no-deal Brexit can be avoided only if either or both things happen: pass a different exit plan backed by a majority of Commons; or pass a proposal to postpone Brexit.
This morning, the Cabinet Office of Japan reported that the total value of core machinery orders declined by a seasonally adjusted 5.4% in January to ¥822.3 billion. The reported figure missed economists’ anticipations for a decline of 1.5%. In December, the core machinery orders fell by 0.3%.
On a y-o-y basis, core machinery orders plunged 2.9%, which is worse than the 2.1% fall anticipated by analysts. Last month, core machinery orders grew by 0.9% on a yearly basis.
Manufacturing orders declined 1.9% m-o-m and 7.5% year-over-year, while non-manufacturing orders plunged 8% on m-o-m and added 1% on a year-over-year basis. Therefore, the economic data is expected to keep the yen weak in the near-term.
The price chart indicates that the USD/JPY pair is moving along an ascending channel as seen in the image below. Additionally, The MACD histogram has a positive reading. The currency pair is also trading above its 50-day moving average. Therefore, we can expect the greenback to gain further ground against the yen in the days to come.
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.
