USD/JPY – Yen Back Under 98 As US Shutdown Starts

The yen has reversed direction and posted gains in Tuesday trading. In the European session, USD/JPY is trading in the mid-97 range and has erased Monday’s gains.  The dollar is under pressure as the US government has shut down non-essential services, as Congress failed to resolve the budget deadlock. In economic news, the Japanese Tankan indexes hit multi-year highs, but consumer spending indicators were weak. Over in the US, today’s key event is ISM Manufacturing PMI. The index has looked strong in recent releases and little change is expected in the September release.

Japanese releases were mixed on Monday, as Household Spending declined by -1.6%, a three-month low. The Unemployment Rate surprised the markets by jumping from 3.8% to 4.1% in August, well above the estimate of 3.8%. The increase was unexpected, given that the Japanese economy has been improving, and this will likely raise concerns that the recovery is not translating into new jobs. Average Cash Earnings, an important consumer spending indicator, posted a decline of -0.6% on Tuesday, a four-month low. There was much better news from the important Tankan indexes. The Tankan Manufacturing Index jumped from 4 to 12 points. The estimate stood at 7 points. The Tankan Non-Manufacturing Index also rose, rising from 12 to 14 points, matching the forecast. This was the best showing for both indicators since November 2007.

With Congress failing to reach an agreement on the budget before October 1, the US government has now shut down non-essential services. This last happened in 1996, and politicians on both sides of the divide will be trying to hammer out a compromise to end the crisis. Both sides seem entrenched in their positions. Republicans want to defund Obamacare before they approve a budget, and the Democrats are determined to protect their health care bill. If things are resolved sometime this week, it will have been more of a nuisance than a crisis. However, a much more serious crisis could occur in two weeks if Congress doesn’t reach an agreement on raising the debt ceiling. If that happens, the Treasury would be unable to pay all of its bills, and the economic fallout could be tremendous.

USD/JPY for Tuesday, October 1, 2013

USD/JPY October 1 at 11:10 GMT

USD/JPY 97.72 H: 98.05 L: 97.50

USD/JPY Technical

• USD/JPY continues to show volatility, and has dropped on Tuesday. The pair has been dropping steadily since late in the Asian session.
• The pair is testing resistance at 97.83. This weak line could see further activity during the day. This is followed by resistance at 98.43.
• On the downside, USD/JPY continues to receive support at 97.18. Given the strong gains we are seeing from the yen, this line cannot be considered safe. This is followed by the round number of 96.00.
• Current range: 97.18 to 97.83

Further levels in both directions:

• Below: 97.18, 96.00, 95.06 and 94.20
• Above: 97.83, 98.43, 99.45, 100, 100.85 and 101.66

OANDA’s Open Positions Ratio

USD/JPY ratio has reversed direction and is pointing to movement towards short positions in Tuesday trading. This is reflective of what we are currently seeing from the pair, as the yen continues to improve at the expense of the US dollar.

The yen is putting pressure on the US dollar as USD/JPY trades in the mid-97 range. The volatility we are seeing from the pair this week could continue if the US budget crisis is not resolved. As well, the US releases a key PMI later today, and this could affect the movement of the pair if the reading is not in line with market expectations.

USD/JPY Fundamentals

• 1:30 Japanese Average Cash Earnings. Estimate -0.2%. Actual -0.6%.
• 3:45 Japanese 10-year Bond Auction. Actual 0.68%.
• 13:00 US Final Manufacturing PMI. Estimate 52.8 points.
• 14:00 US ISM Manufacturing PMI. Estimate 55.3 points.
• 14:00 US ISM Manufacturing Prices. Estimate 55.2 points.
• Tentative – US Construction Spending. Estimate 0.5%.
• All Day – US Total Vehicle Sales. Estimate 16.1M.

*Key releases are highlighted in bold

*All release times are GMT

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