Yen turns weak on 6-month low flash PMI

On May 11th , we had expressed our intention to go short in the USD/JPY pair near 114.40, with a target of 111.20. We had also stated our interest to invest in a put option in the binary market.

As forecasted the USD/JPY pair fell to a low of 110.23 in a matter of one week. That resulted in a profit from both Forex and binary option trades.

Now, the pair has gained a bit of lost ground and is trading at about 111.60. We anticipate the pair to consolidate and rise further in the week ahead due to the facts mentioned underneath.

In Japan, on Tuesday, IHS Markit reported a six month low flash manufacturing PMI (purchase managers’ index) reading of 52 in May, compared with 52.7 in the previous month and lower than analysts’ expectation of 52.9. Moreover, job creation has dipped to the lowest level since November.

CNBC

In New York, Mickey Levy, chief economist at Berenberg Capital Markets, stated that the US consumer and business confidence is still very high. He also pointed out that the minutes of the FOMC meeting, held on May 2nd , indicate a high probability of a rate hike in June.

Notably, unemployment, an important data looked at by the US Fed, recorded a low of 4.4% in April – better than 4.7% estimated as the lowest sustainable level. On the basis of the job data, members of the rate setting committee, Boston Fed Chief Eric Rosengren and Cleveland’s Loretta Mester, have warned that the US Fed may fail in its fight against inflation, if it postpones quarterly rate hikes.

While giving a speech at Drexel University, Philadelphia Fed head Patrick Harker stated that he anticipates a strong economic activity in the rest of the year. Harker also opined that the economic weakness seen in the first-quarter was mainly due to seasonal factors. Furthermore, toeing a similar line with other members of the Committee, Harker stated that he expects two more hikes this year, on the basis of strong employment data and strength of the economy. Thus, looking forward, the market would begin to price in a rate hike. That would fundamentally turn the Greenback bullish against the Yen.

Technically, the pair is moving above its 32-period (H4) moving average. The MACD indicator is heading upwards and is about to cross the zero line. That indicates an increase in the buying pressure. So, betting on the Greenback’s rise would be the obvious choice as of now.

In the currency market, we may create a long position near 111.30, with a stop loss order below 110.20. If the pair moves up as anticipated, then we would exit near 113.50.

Alternatively, we are also looking at the possibility of purchasing a call option valid for around a week. A strike price of about 111.30 seems to be the ideal entry level.

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