USD/JPY – Yen Under Pressure Ahead of Federal Reserve Statement

USD/JPY posted more gains on Wednesday, as the pair pushed again crossed above the 91 level. The markets are waiting for the Federal Reserve Statement, as the powerful US central bank wraps up a two-day monetary policy meeting. In the US, a key consumer confidence reading posted a very weak reading on Tuesday. The markets will be hoping for better news today, with three key scheduled releases – ADP Non-farm Employment Change, Advance GDP and the FOMC Statement. Japanese Retail Sales dropped sharply, but fell within market expectations.

The Federal Reserve will be in the spotlight on Wednesday, as it wraps up an important two-day policy meeting. The Fed continues to do its best to bolster the bumpy recovery, and increased its purchases of securities in January from $40 billion to $85 billion. This has pushed the Fed’s balance sheet to a record $3 trillion. Despite these measures, the US recovery remains slow, and unemployment is still high at 7.8%. Minutes from the most recent FOMC pointed to members being divided between those in favor of ending QE in mid-2013, versus those who wish to continue it to a later date. When the Fed implemented the most recent round of QE, it stated that it would continue until unemployment fell to 6.5%. Most analysts are predicting that the Fed will reaffirm this stance at the conclusion of today’s meeting.

US economic indicators continue to point in all directions, much to the consternation of the markets. Recent employment and retail sales numbers have been very positive, but this has been offset by weak housing and manufacturing data. Consumer confidence is also on the wane, as underscored by Tuesday’s CB Consumer Confidence release. The key indicator dropped sharply to 58.6 points, its worst showing in over a year. The markets had expected a much higher reading of 64.8 points.  We may get a better idea of the health of the US economy with the release of GDP on Wednesday. The markets are bracing for a relatively weak reading, with an estimate of a 1.1% gain. In Japan, Retail Sales paled compared to the previous release, with a weak gain of just 0.4%. This matched the market estimate. The markets will be hoping for better news as Japan releases a pair of manufacturing releases later on Wednesday.

With the yen depreciating rapidly and trading at such high levels, Japanese officials have been on the defensive. At the World Economic Forum in Davos, Japan’s economy minister defended his government’s stimulus program. Akira Amari stated that the government did not have a deliberate policy to weaken the yen, and that it was up to the market to determine the currency’s exchange rate. Prime Minister Shinzo Abe also deflected criticism of his government’s aggressive economic program, stating that his main goal was to stem deflation, not weaken the yen. However, just last week, the deputy economy minister, Yasutoshi Nishimura, said the government would not have a problem if the yen slid to 100. This seems to indicate that the Japanese government does indeed have an interest in  lowering the value of the yen as part of its economic agenda.

 

USD/JPY for Monday, January 30, 2013

Forex Rate Graph 21/1/13

USD/JPY January 30 at 12:00 GMT

91.27  H: 91.40 L: 90.76

 

S3 S2 S1 R1 R2 R3
89.85 90.23 90.91 91.30 91.94 92.53

 

The Japanese yen remains under strong pressure, and USD/JPY has once again pushed across the 91 level. The pair is currently testing resistance at 91.30. This is followed by resistance at 91.94. This line has remained intact since June 2010. However, it cannot be considered safe, with the yen continuing to drop to multi-year lows against the US dollar.

  • Current range: 90.91 to 91.30.

 

Further levels in both directions:

  • Below:90.91, 90.23, 89.85, 89.31, 88.55, 87.95, 87.36 and 86.97.
  • Above: 91.30, 91.94, 92.53, 93.14 and 93.42.

 

OANDA’s Open Position Ratios

USD/JPY continues to push higher, and this activity can also be seen in the USD/JPY ratio, which is showing strong movement in the direction of long positions. If the upward trend continues, we can expect to see further movement in the ratio as well. Traders should note that the ratio is very close to an even split in the open positions, as a result of the movement in favor of long positions.

The yen is having trouble gaining its footing, and the US dollar is taking full advantage. With the Federal Reserve announcement and key US data being released later on Wednesday, we could see some volatility from USD/JPY.

 

USD/JPY Fundamentals

  • 13:15 US ADP Non-Farm Employment Change. Estimate 164K.
  • 13:30 US Advance GDP. Estimate 1.1%.
  • 13:30 US Advance GDP Price Index. Estimate. 1.5%.
  • 15:30 US Crude Oil Inventories. Estimate 2.9M.
  • 18:00 German Deutsche Bundesbank President Jens Weidmann Speaks.
  • 19:15 US FOMC Statement.
  • 19:15 US Federal Funds Rate. Estimate <0.25%.
  • 23:15 Japanese Manufacturing PMI.
  • 23:50 Japanese Preliminary Industrial Production. Estimate 4.2%.

 

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Get OANDA's exclusive weekly Market Pulse FX

HTML
  • HTML
  • Text
Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.