The Japanese yen has posted strong gains in Tuesday trading, taking advantage of poor manufacturing releases out of the US on Monday. In the European session, USD/JPY was trading in the mid-97 range. In economic news, today’s highlight is US CB Consumer Confidence. There are no Japanese releases on Tuesday.
When will the US Federal Reserve scale down QE? That is the million dollar question which continues to preoccupy the markets. The release last week of the FOMC didn’t provide any hints, but appeared to confirm that QE tapering is a question of “when” rather than “if”. The minutes showed that Fed policymakers favor scaling back the bond-buying program, but are divided on the timing of such a move. The policymakers stated that recent US economic data was “mixed”, and all members agreed that it was still too early to scale back the current bond-buying levels of $85 billion each month. QE is a dollar-positive event, so traders should prepare for the US currency to post gains against the major currencies when the Fed decides to taper.
The annual Jackson Hole Summit concluded on the weekend, but anyone expecting some clarity on QE tapering was in for a disappointment. Federal Reserve head Bernard Bernanke was a no-show, and other policymakers didn’t hesitate to share their views. Dennis Lockhart, head of the Atlanta Fed, said that tapering could start in September, but only if US economic numbers justified such a move. There was a more hawkish statement from James Bullard, head of the St. Louis Fed. Bullard said that there was no need for the Fed to rush into QE tapering. The uncertainty over QE tapering has boosted the US dollar, raised the yields on US treasury bonds and had worldwide repercussions, such as causing jittery investors to pull billions of dollars out of emerging markets.
US key releases have not looked sharp lately, with Core Durable Goods Orders and Durable Goods Orders looked awful. Durable Goods Orders plunged 7.3% in August, much worse than the estimate of a 3.0% decline. Core Durable Goods Orders, a key release, dropped 0.6%, its first decline since April. The markets had anticipated a gain of 0.6%. These poor manufacturing figures come after the release of New Home Sales on Friday, which also were well off market expectations. However, the US dollar has managed to shrug off these weak figures, as the market focus appears to be on QE tapering rather than US economic releases.
In Japan, the week started well as Corporate Services Price Index posted its second straight gain, rising 0.4%. This matched the market forecast. Although not a major release, the CSPI was good news, as one of the cornerstones of the Abe government’s economic policy has been to stamp out deflation, which has hobbled the Japanese economy for years. The economy seems to responding to the government’s aggressive economic platform and there are signs of increased economic activity as many releases point upwards. At the same time, the country huge debt continues to weigh on the economy. Japan is expected to spend a record $257 billion to service its debt in 2014, and this will require the government to implement unpopular tax hikes.
USD/JPY for Tuesday, August 27, 2013
USD/JPY August 27 at 12:40 GMT
USD/JPY 97.44 H: 98.35 L: 97.35
- The yen has risen sharply in Tuesday trading. USD/JPY edged lower in the Asian session and dropped sharply in European trading, pushing below the 98 line.
- USD/JPY is facing resistance at 97.83. This is not a strong line, and faces pressure if the dollar reverses direction. This is followed by resistance at 98.43.
- On the downside, USD/JPY is receiving weak support at 97.18. This is followed by support at 96.20. This line has held firm since mid-August.
- Current range: 97.18 to 97.83
Further levels in both directions:
- Below: 97.18, 96.20, 95.60 and 94.29
- Above: 97.83, 98.43, 99.45, 100.00, 100.85 and 101.66
OANDA’s Open Positions Ratio
USD/JPY ratio is pointing to movement in the direction of long positions on Tuesday. This is not reflected in the current movement of USD/JPY, which has broken out of rangebound trading as the yen pushes upwards.
The yen has posted sharp gains on Tuesday, dropping into 97 territory. The US releases key consumer confidence data later in the day, which could affect the direction of USD/JPY if the reading is not in line with market expectations.
- 13:00 US S&P/CS Composite-20 HPI. Estimate 11.9%.
- 14:00 US CB Consumer Confidence. Estimate 79.6 points.
- 14:00 US Richmond Manufacturing Index. Estimate -7 points.
*Key releases are highlighted in bold
*All release times are GMT