JPY/USD – Yen Strengthens after Japanese Stock Market Jitters

The yen flexed some muscle on Wednesday, taking advantage of stock market jitters in Japan. USD/JPY has settled down in Thursday trading. The pair is trading slightly above the 99 level, and dipped below this line earlier today. In economic news, the US continues to post mixed releases. Employment numbers were dismal, as ADP Non-Farm Employment came in well below expectations. The news was more positive from the ISM Non-Manufacturing PMI, which beat the forecast. Thursday’s highlight is US Unemployment Claims. The markets are hoping for a turnaround from the key indicator after a weak release last week. In the sole Japanese release, 30-year bonds were up slightly, with an average yield of 1.81%. 

The markets have been treated to some volatility from the yen this week, and the movement of USD/JPY has been mostly downwards. On Wednesday, Prime Minister Abe outlined his plan for reviving the Japanese economy. Abe discussed economic growth as the “third arrow” in the fight against deflation, together with fiscal and monetary stimulus. However, the speech received a cold response from the markets, as Abe was short on substance, and  failed to provide any specifics on new stimulus measures. The Nikkei fell, which was good news for the yen, as nervous investors snapped up the safe-haven currency.

Which way is the US economy headed? The US continues to post some weak numbers, and on Wednesday it was the turn of ADP Non-Farm Payrolls. The key indicator has struggled, and has now missed the estimate for three consecutive releases. The indicator came in at 135 thousand, well off the forecast of 171 thousand. We’ll see more key employment numbers this week, with the release of Unemployment Claims later today, followed by the Unemployment Rate and Non-Farm Payrolls on Friday. Traders can expect some volatility from the US dollar if these readings catch the markets by surprise.

Will the Federal Reserve scale back QE? Although the Fed hasn’t made any changes so far, Fed policymakers, including Fed Chair Bernanke, continue to hint that QE could be scaled back in the next few months. With the US continuing to alternate between good and bad economic releases, the Fed may continue to hold off on any changes to QE before it is convinced that the US economy is improving. The Fed has repeatedly stated that it wants to see an improvement in the labor picture before taking any action, so this week’s employment releases could play a major role in what action, if any, the Fed takes with regard to QE.

USD/JPY for Thursday, June 6, 2013

USD/JPY 99.13 H: 99.46 L: 98.85

USD/JPY Technical

USD/JPY is trading quietly in the low-99 range, as the proximate support and resistance levels remain in place (S1 and R1 above). On the upside, the pair is facing resistance at 99.57. This is followed by resistance at the key 100 level. On the downside, the pair is testing support at 98.94. This line could break if the pair continues to move lower. This is followed by a strong support level at 97.18. This line has held firm since May.

• Current range: 98.94 to 99.57

Further levels in both directions:

• Below: 98.94, 97.18, 96.03 and 94.91
• Above: 99.57, 100.00, 100.66, 101.81 and 102.60

OANDA’s Open Positions Ratio

USD/JPY ratio has continued where it left off on Wednesday, pointing to movement towards long positions. This is not reflected in the current movement of the pair, as the yen has posted slight gains against the US dollar. However, this activity in the ratio could be an early sign that the pair will undergo a correction and move upwards.

USD/JPY continues to drop, and is testing the 99 line. Will the yen continue to move higher? We could see some movement from the pair, as the US releases key employment numbers later today.

USD/JPY Fundamentals

• 3:45 Japanese 30-year Bond Auction. Actual 1.87%
• 11:30 US Challenger Job Cuts.
• 12:30 US Unemployment Claims. Exp. 345K.
• 14:30 US Natural Gas Storage. Exp. 101B.

*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.