USD/JPY – Dollar Edges Lower, Dips Below 97

USD/JPY has edged lower in Monday trading. In the European session, the pair is trading just below the 97 line. It’s a very quiet start to the week, with no major releases out of Japan or the US. In Japan, the BOJ released its Monthly Report, and Leading Indicators met expectations. There is no progress to report on the US shutdown, as the budget deadlock continues.

The US government shutdown will be a week old on Tuesday, and there is no progress to report out of Washington. Democrats and Republicans continue to play the blame game as the government remains paralyzed without funds to operate. Republicans had demanded that the Democrats delay implementation of the 2010 health care act, known as Obamacare, before agreeing to pass a budget. The Democrats have refused, saying the budget must first be passed before any discussions can be held. There are increasing concerns that a prolonged shutdown will hurt the US economy. If the shutdown does continue, we could see some instability in the markets this week, and the US dollar, which is already under strong pressure, could lose ground.

The media and markets continue to focus on the shutdown, which has paralyzed the US government for close to a week. However, a potentially devastating crisis is creeping up – the debt ceiling. The US has a debt worth $16.7 trillion, and will run out of funds to service the debt by October 17, unless Congress authorizes raising the debt ceiling. Otherwise, the US could potentially default on its obligations, which could cause chaos in the domestic and international markets. Over the weekend, Republican House Speaker John Boehner seems to have hardened his position, saying that the Republicans would not raise the debt ceiling without a “serious conversation” about what is driving the debt to such high levels. This statement (threat?) has irked the Democrats and will do little to soothe jittery markets.

There was a lot of expectation that the Federal Reserve would taper QE in September, and the markets were caught by surprise when the Fed balked and maintained the levels of the bond-buying program at $85 billion/mth. However, things have changed dramatically in the past few weeks, with the budget deadlock in Washington, as well as growing fears about a debt ceiling crisis. Even if both of these issues were to be resolved quickly, the distortions and delays in key economic data will make it difficult for the Fed to have an accurate, up-to-date picture of the US economy. This will likely rule out any decision to taper QE before the end of the year.

As expected, the Bank of Japan opted not to add to its monetary stimulus program last week, and has held its benchmark interest rate at 1.0%. The BOJ remains cautiously optimistic, noting that the economy was improving at a moderate pace. The BOJ also decided to continue increasing the bank’s monetary base by 60-70 trillion yen/year and noted that inflation was on the rise. A cornerstone of Japanese economic policy has been the elimination of deflation, and the BOJ is slowly moving towards its target of 2.0% inflation. In other news, Prime Minister Shinzo Abe said that the economy is strong enough to absorb a sales-tax increase. The government is eyeing a higher sales tax as one method of tackling the country’s staggering national debt, which stands at 1,000 trillion yen – twice the size of its GDP.

USD/JPY for Monday, October 7, 2013

USD/JPY October 7 at 11:15 GMT

USD/JPY 96.91 H: 97.27 L: 96.85

USD/JPY Technical

• USD/JPY has edged lower in Monday trading. The pair continues to test the 97 line in European trading.
• The pair is facing resistance at 97.18. This weak line could see further activity during the day. This is followed by resistance at 97.87.
• On the downside, USD/JPY is receiving support at the round number of 96.00. This is followed by support at 95.06.
• Current range: 95.06 to 96.00

Further levels in both directions:

• Below: 96.00, 95.06, 94.20 and 93.34
• Above: 97.18, 97.83, 98.43, 99.45 and 100

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged in Monday trading. This is not reflected in the pair’s current movement, as the yen has posted slight gains against the dollar. The ratio is dominated by long positions, indicative of a strong trader bias towards the US dollar climbing higher against the yen.

USD/JPY is trading just below the 97 level. With no major releases out of Japan or the US on Monday, we could see the pair continue to stick close the 97 level.

USD/JPY Fundamentals

• 5:00 Bank of Japan Monthly Report.
• 5:00 Japanese Leading Indicators. Estimate 106.9%. Actual 106.5%.
• 19:00 US Consumer Credit. Estimate 12.6B.

*Key releases are highlighted in bold

*All release times are GMT

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