USD/JPY – Yen Under Pressure As Crisis Talks Intensify

The US dollar continues to put pressure the yen on Friday. The dollar has been marching upward most of this week and is trading in the mid-98 range in Friday’s European session. On Thursday, US jobless claims soared, while the Japanese Corporate Price Index posted a strong gain. Friday has a light schedule, with the major release being UoM Consumer Sentiment. There are no Japanese releases on Friday. In Washington, there is talk of progress over the US shutdown and debt ceiling, as high-level talks continue on Capitol Hill.

Could the shutdown soon be over? There appears to be progress towards some agreement on the budget, as high-level talks continue between the Republicans and Democrats in Washington. President Obama held a 90-minute meeting with Republican leaders on Thursday, and the talks continued into the night. The Republicans are likely to make a proposal which would extend the debt ceiling until late November, but would require the Democrats to discuss the budget before that. The White House and Democrats are cool to the idea, but both sides have lowered the rhetoric, as the government shutdown drags on and the debt ceiling hits its limit next week. US Treasury Secretary Jack Lew testified before the Senate finance Committee on Thursday and warned that the political crisis was starting to take a toll on the US economy. With the public blaming both parties for the impasse, the politicians are looking for a way to end the crisis and get the government operating again.

US jobless claims soared last week, hitting a six-month high. The key indicator jumped from 308 to 374 thousand, way above the estimate of 307 thousand. However, this exceptionally high reading could be a one-time aberration, in part due to technical issues in California. In the end, this critical release hasn’t helped the markets gauge the health of the labor market. Non-Farm Payrolls, another vital employment release, is suspended while the shutdown continues, so the US employment picture remains unclear.

The US dollar was broadly higher earlier in the week, as President Obama nominated Susan Yellen to replace Bernard Bernanke as chairman of the Federal Reserve. Bernanke is due to retire early next year, and Yellen, who serves as Fed vice-chairwoman, became the leading candidate after former Treasury Secretary Lawrence Summers withdrew his candidacy. Yellen is considered dovish in stance and has supported Bernanke in previous rounds of QE increases. Yellen’s nomination must be confirmed by the Senate, but this is expected to be little more than a formality, as she enjoys wide support from both sides of Congress.

QE tapering, one of the hottest topics in the markets just a few weeks ago, has quickly moved to the backburner, courtesy of the budget and debt ceiling crises which have gripped Washington. Earlier this week, the Fed released the minutes of its September policy meeting. At that meeting, the Fed surprised the markets by not reducing its bond-purchasing program, which currently runs at $85 billion/mth. The minutes stated that the decision not to begin tapering was a “close call”. This has raised speculation that we could see tapering before the end of the year. However, the Fed is reluctant to make any major moves in the midst of the political crisis the US is currently experiencing. As well, the Fed is “data dependent”, and key releases such as Non-Farm Payrolls have been suspended to the shutdown. This makes it difficult for the Fed to get an accurate picture of the true state of the economy. Bottom line? We may not see any QE moves by the Fed before the end of the year.

USD/JPY for Friday, October 11, 2013

USD/JPY October 11 at 11:40 GMT

USD/JPY 98.36 H: 98.55 L: 98.19

USD/JPY Technical

• USD/JPY has recorded modest gains in Friday trading. The pair dipped below the 98 line early in the Asian session but rebounded and crossed back into 98 territory.
• The pair is testing resistance at 98.43. Will this line hold firm? This is followed by resistance at 99.45, which is protecting the crucial 100 line.
• On the downside, USD/JPY is receiving support at 97.87. This is followed by support at 97.18.
• Current range: 97.87 to 99.43

Further levels in both directions:

• Below: 97.87, 97.18, 96.00, 95.06 and 94.20
• Above: 98.43, 99.45, 100 and 101.19

The US dollar continues to make inroads against the yen and has gained about 150 points since early in the week. USD/JPY is trading close to the 98 level. With the US releasing key consumer confidence data later in the day, we could see some volatility from the pair in the North American session.

USD/JPY Fundamentals

• 13:55 US Preliminary UoM Consumer Sentiment. Estimate 77.2 points.
• 13:55 US Preliminary UoM Inflation Expectations.
• 15:00 US FOMC Member Jerome Powell Speaks.
• Day 1 – IMF Meetings.
• Day 2 – G20 Meetings.

*Key releases are highlighted in bold

*All release times are GMT

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.