The Japanese yen is red-hot, as the currency makes strong inroads against the retreating US dollar. USD/JPY is trading in the mid-94 range, its lowest level since early April. The yen has now surged about 400 points against the dollar this week. The currency continues to benefit from sharp losses on the Nikkei. Thursday’s sole Japanese release is the BOJ’s Monetary Policy Meeting Minutes. In the US, the markets will get their first look this week at key US numbers, with the release of three major events – Retail Sales, Core Retail Sales and Unemployment Claims.
The yen continues to post sharp gains, courtesy of the Nikkei, which has sustained sharp losses. The Japanese stock market has lost 20% of its value since late May, making it a bear market. Japanese equities have slumped as the BOJ has failed to address the volatility in the bond market. The yen has thus risen sharply as nervous investors have dumped their stocks and flocked to the safety of the Japanese currency.
The Japanese government is determined to stamp out deflation, which has hobbled the Japanese economy for years. Earlier this week, there was some good news on this front as the Corporate Goods Price Index rose by 0.6%,indicating inflation. This was shy of the estimate of 0.7%, but significantly, this marked the first time since April 2012 that the indicator was above zero. If additional inflation indicators point to more inflation in the economy, it will be a good indication that the government’s aggressive monetary policy is finally achieving results.
Taking a look at the US, there was some good news from the S&P ratings agency on Monday, as the well-respected firm revised the US sovereign credit rating from negative to stable. This is an important vote of confidence in the US economy, and means that there is less than a 1 in 3 chance of another downgrade in the next two years. S&P noted that a key factor in its revision was the agreement reached in the US Congress which averted the fiscal cliff crisis, which would have led to $600 billion in automatic tax increases and spending cuts and could have pushed the fragile US economy into recession. In 2011, S&P cut the US credit rating from AAA to AA, and the threat of another downgrade has been a concern of the markets. This development will likely improve market sentiment and could give a boost to the US dollar.
The S&P decision could also affect the US Federal Reserve’s QE program, which involves the purchase of $85 billion in assets each month. The Fed has said that it won’t scale back the program before it sees a stronger economy and an improving employment picture. Although US releases continue to be mixed, speculation is rising that the Fed could take action in the next few months. Since QE is US dollar-negative, any tapering of QE could give a boost to the greenback and jolt the currency markets.
USD/JPY for Thursday, June 13, 2013
USD/JPY 94.36 H: 95.60 L: 93.79
USD/JPY continues to plunge, and briefly dipped below the 94 line early in the European session. The pair is receiving support at 94.02. This is a weak line, and could be tested if the yen continues to surge. This is followed by strong support at 92.73. On the upside, the pair is facing resistance at 94.91, which is protecting the 95 line. This is followed by resistance at 96.03.
- Current range: 94.02 to 94.91
Further levels in both directions:
- Below: 94.02, 92.73, 91.62 and 91.02
- Above: 94.91, 96.03, 97.18, 98.94, 99.57 and 100.00
OANDA’s Open Positions Ratio
USD/JPY ratio continues to point to movement in the direction of long positions. This has been the trend for most of this week. Long positions have increased their majority in the ratio, signaling a strong bias towards a correction and recovery by the US dollar.
The yen continues to manhandle the US dollar, and has posted sharp gains this week. We could see more movement from USD/JPY during the day, as the US releases key retail sales and employment numbers.
- 12:30 US Core Retail Sales. Estimate 0.3%
- 12:30 US Retail Sales. Estimate 0.4%
- 12:30 US Unemployment Claims. Estimate 354K
- 12:30 US Import Prices. Estimate 0.0%
- 14:00 US Business Inventories. Estimate 0.3%
- 14:30 US Natural Gas Storage. Estimate 96B
- 17:00 US 30-year Bond Auction
- 23:50 Bank of Japan Monetary Policy Meeting Minutes
*Key releases are highlighted in bold
*All release times are GMT