USD/JPY – Yen Weakens As Yellen Nomination Expected

USD/JPY continues to post gains in Wednesday trading. The pair is trading in the low-97 range in the European session. The dollar improved after reports that President Obama will nominate Federal Reserve Vice Chairwoman Janet Yellen to head the Federal Reserve early next year. In economic news, Japanese Preliminary Machine Tool Orders disappointed, posting a sharp decline of -6.3%. Core Machinery Orders and Tertiary Industry Activity will be released later. Over in the US, today’s highlight is the minutes from the Fed’s last policy meeting. The US government is in week 2, with little progress over the budget deadlock or the impending debt ceiling.

The Japanese economy has picked up steam, but the manufacturing sector continues to struggle. Preliminary Machine Tool Orders dropped 6.3% in September, as the indicator has not posted a gain in over a year. We’ll get another look at manufacturing data later in the day, with the release of Core Machinery Orders. The markets are expecting a solid gain of 2.9%.

The dollar posted broad gains following media reports that President Obama will nominate Susan Yellen to replace Bernard Bernanke as chairman of the Federal Reserve. Bernanke is due to retire early in 2014, and Yellen, who serves as Fed vice-chairwoman, became the leading candidate after Lawrence Summers withdrew his candidacy. Yellen is considered dovish in stance and has supported Bernanke in three rounds of QE increases. Meanwhile, the markets will be paying close attention to the release of the FOMC minutes later today, looking for more clarity about the Fed’s position on QE tapering.

The US shutdown has now entered its second week, and the Republicans and Democrats continue to play the blame game. Neither side is showing any flexibility, at least in front of the cameras. Polls show that most of the public blames the Republicans for the impasse, and this is likely increasing the pressure on the Republicans to agree to pass the budget so that the government can resume operating. The economic damage from the shutdown is not expected to be substantial, but the political fallout of this crisis will likely be significant.

As the shutdown drags on, Congress needs to deal urgently with another brewing crisis – 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. There is a lot of bad blood between the Republicans and Democrats over the shutdown, and this will undoubtedly complicate negotiations over the debt ceiling. With just a week to go until the debt ceiling is reached, the markets could get volatile if the politicians in Washington don’t get their act together quickly.

USD/JPY for Tuesday, October 9, 2013

USD/JPY October 9 at 11:30 GMT

USD/JPY 97.27 H: 97.47 L: 96.92

USD/JPY Technical

• USD/JPY has moved higher in Wednesday trading. The pair pushed above the 97 line in the Asian session.
• The pair is facing resistance at 97.87. This is followed by resistance at 98.43.
• On the downside, USD/JPY is testing support at 97.18. This line is fluid and could see more activity during the day. The next support level is at the round number of 96.00.
• Current range: 96.00 to 97.18

Further levels in both directions:

• Below: 97.18, 96.00, 95.06, 94.20 and 93.34
• Above: 97.87, 98.43, 99.45 and 100

OANDA’s Open Positions Ratio

USD/JPY ratio is showing little change in Wednesday trading. This is not reflected in the pair’s current movement, as the dollar continues to move higher against the yen. The ratio is dominated by long positions, indicative of a strong trader bias towards the pair’s upward trend continuing.

USD/JPY is trading above the 97 level. The US will release the FOMC Meeting minutes later in the day, and this could impact on the direction of USD/JPY.

USD/JPY Fundamentals

• 6:00 Japanese Preliminary Machine Tool Orders. Actual -6.3%.
• 14:00 US FOMC Member Charles Evans Speaks.
• 14:30 US Crude Oil Inventories. Estimate 0.9M.
• 17:01 US 10-year Bond Auction.
• 18:00 US FOMC Meeting Minutes.
• 19:00 President Obama Speaks. Obama is expected to nominate Susan Yellen to head the Federal Reserve.
• 23:50 Japanese Core Machinery Orders. Estimate 2.9%.
• 23:50 Japanese Tertiary Industry Activity. Estimate 0.5%.
• 23:50 Japanese Bank Lending.

*Key releases are highlighted in bold

*All release times are GMT

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