USD/JPY – Higher as US Employment Numbers Shine

USD/JPY is pushing higher, and ended last week by edging above the 99 level. In Monday trading, the pair was trading in the low 99.2o range. Will we see another concerted push towards the elusive 100 line this week? It’s a bank holiday in Japan today, and with no fundamental releases out of the US, it’s unlikely that we will see much movement from the pair during the day.

At its recent policy meeting, the BoJ noted that it could take more than two years to reach its 2% inflation target. This possibility has been underscored by recent Japanese inflation releases, which continue to point to deflation in the economy, despite the best efforts of the BOJ to create some inflation. This could mean that the central bank will resort to further easing measures later in the year, which is bearish for the yen. So there is still an expectation that the yen will continue to lose ground, as it has since late last week.

After weeks of a political stalemate, Italy finally formed a government last week. Since this dramatic development, we’ve seen some respectable releases from the Eurozone’s third largest economy. Last week, Italian 10-year bonds dropped below 4%, an important sign of investor confidence in the Italian economy. Then, the Italian Monthly Unemployment Rate edged lower, from 11.6% to 11.5%.  Manufacturing and Services PMIs have followed suit, and also beat expectations. If the new coalition makes good on its promises to continue with major economic reforms, we could see the Italian economy improve, which would be excellent news for the Eurozone and the euro.

Back in the US, last week’s employment numbers were welcome news, as the US has been churning out mostly weak key releases. Unemployment Claims came in below expectations for the second straight week. The key indicator dropped from 339 thousand to 324 thousand, blowing past the estimate of 346 thousand. On Friday, Non-Farm Payrolls climbed to 165 thousand. This easily beat  the estimate of 146 thousand. As well, the Unemployment Rate fell from 7.6% to 7.5%. Improving employment numbers are critical for economic growth, and the markets are hoping that the good news continues.

USD/JPY for Monday, May 6, 2013

USD/JPY 99.27 H: 99.45 L: 99.06

USD/JPY Technical

USD/JPY is trading quietly as we begin the new trading week. On the downside, the pair continues to receive support at 98.45. The next support level is at 97.24. The pair faces resistance at 99.57. This is a weak line, and could be tested if the yen continues to lose ground. This is followed by resistance at the all-important 100 line.

• Current range: 98.45 to 99.57

Further levels in both directions:

• Below: 98.45, 97.24, 96.03 and 95.27
• Above: 99.57, 100, 100.54 and 101.81

OANDA’s Open Position Ratios

Long positions make up a solid majority in the ratio, indicating that trader sentiment is strongly biased towards the dollar pushing higher at the expense of the yen. This conforms to market expectations that we will see the dollar push above the 100 level.

After showing some improvement, the yen has run out of steam, and the pair again finds itself within striking distance of the 100 level. With no releases out of the US or Japan on Monday, we could see the pair continue to trade quietly near the 99 level.

USD/JPY Fundamentals

• There are no scheduled releases out of the US or Japan on Monday.

*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.