USD/JPY – Yen Rally Continues Following US Debt Deal

USD/JPY continues to post gains against the US dollar in Friday trading. The pair climbed about 100 points on Thursday and the rally continues on Friday, with the pair trading in the mid-97 range. Congress has agreed to fund the government and raise the debt limit, but only for a few months, so the dollar’s struggles continue. In economic news, US Unemployment Claims dropped from the previous week, while the Philly Fed Manufacturing Index easily beat the estimate. The week is ending on a very quiet note, as there are no economic releases out of Japan or the US. In Japan, BOJ Governor addressed a financial forum in Tokyo, while in the US, the only events on the schedule are speeches from four FOMC members.

After weeks of bitter fighting in Congress, the crisis is finally over, as the Republicans and Democrats finally reached an agreement on Wednesday to reopen the government and raise the debt ceiling. The agreement passed by wide margins in both the Senate and House. However, the deal provides short-term relief only – the government will be funded until January 15, while the debt limit will be raised until February 7. Both sides agreed to discuss budget issues and try to reach a long-term agreement before December 13. Could we find ourselves in this nightmarish scenario just a few months down the road? The Republicans appear to be the big losers in this saga, as they failed to obtain any concessions regarding the Obama health care act and are blamed by most of the public for precipitating an unnecessary political and fiscal crisis.

The fiscal and political crisis which has gripped Washington for weeks has taken a bite out of the economy and hurt US credibility and international standing. The government shutdown, which lasted for over two weeks and temporarily threw hundreds of thousand of federal employees out of work, is estimated to have cost the economy $24 billion. The cost of the debt crisis is harder to quantify, but has certainly eroded faith in the US economy and perhaps in the US dollar as well. This was underscored by a warning from Fitch Ratings on Tuesday, when the agency put US debt on a negative watch. Fitch stated that the crisis had cast doubt over the credit of the United States and had undermined confidence “in the role of the US dollar as the pre-eminent global reserve currency”. Meanwhile, the dollar continues to struggle against the major currencies, and EUR/USD is close to eight-month lows on Friday.

With the crisis in Washington over, at least for while, the markets can shift their attention to US economic data. Unemployment Claims came in at 357 thousand, very close to the estimate of 358 thousand. This figure was an improvement from last week, but still well above previous releases. The shutdown inflated the release, as hundreds of thousands of Federal employees were laid off. The markets will be eagerly waiting for other employment data, such as Non-Farm Payrolls, which was not published during the shutdown and is scheduled to be released on Tuesday.

 

USD/JPY for Friday, October 18, 2013

Forex Rate Graph 21/1/13

USD/JPY October 18 at 10:50 GMT

USD/JPY 97.61 H: 98.16 L: 97.55

 

USD/JPY Technical

S3 S2 S1 R1 R2 R3
95.06 96.00 97.18 97.87 98.43 99.45

 

  • USD/JPY continues to lose ground on Friday. The pair has been dropping in the Asian and European sessions as the yen continues to put pressure on the dollar.
  • The pair is receiving support at 97.18. Given the strength we are seeing from the yen, this line cannot be considered safe. This is followed by strong support at the round number of 96.00.
  • On the upside, USD/JPY is facing weak resistance at 97.87. This line could be tested if the US dollar reverses direction. This is followed by resistance at 98.43.
  • Current range: 97.18 to 97.87

 

Further levels in both directions:

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

 

OANDA’s Open Positions Ratio

USD/JPY ratio is pointing to movement towards short positions in Friday trading. This is reflected in the movement of the pair, as the yen continues to post gains against the dollar. The ratio is dominated by long positions, indicative of a strong trader bias towards the US dollar reversing direction and climbing higher.

The yen has taken full advantage of broad dollar weakness and continues to make inroads against the dollar. With no economic releases out of either country on Friday, it could be a quiet North American session for USD/JPY.

 

USD/JPY Fundamentals

  • 6:35 BOJ Governor Haruhiko Kuroda Speaks.
  • 16:30 US FOMC Member Daniel Tarullo Speaks.
  • 18:00 US FOMC Member Charles Evans Speaks.
  • 19:40 US FOMC Member William Dudley Speaks.
  • 20:30 US FOMC Member Jeremy Stein Speaks.

 

*Key releases are highlighted in bold

*All release times are GMT

 

This article 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 Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.