USD/JPY – Slightly Lower As US Retail Sales Slips

The Japanese yen has posted slight gains on Friday, as the pair trades just short of the 102 line. In economic news, US retail sales data weakened in January, while Unemployment Claims disappointed, coming in above the estimate. In the US, today’s highlight is Preliminary UoM Consumer Sentiment. There are no Japanese releases on Friday.

The markets had little to cheer about on Thursday as all three US key releases disappointed. Unemployment Claims rose to 337 thousand, above the estimate of 331 thousand. This reading comes on the heels of JOLTS Job Openings earlier in the week, which also missed market expectations. Core Retail Sales dropped to 0.0%, a nine-month low. The estimate stood at 0.1%. Retail Sales brought no relief, slipping to -0.4%, short of the estimate of 0.0%. Despite the weak releases, the dollar didn’t lose much ground against the yen.

The BOJ has held the course on its aggressive monetary stance, reiterating that its number one priority is to push inflation up to the 2% level. After years of deflation which hobbled the economy, that will clearly take more time. However, inflation is on the rise, and earlier this week Corporate Goods Price Index posted a healthy gain of 2.4%, matching the forecast. Meanwhile, Japanese manufacturing numbers looked weak on Wednesday. Core Machinery Orders declined by 15.7%, its sharpest drop in five years. This was much worse than the market estimate of -4.1%. Tertiary Industry Activity also disappointed, declining by 0.4%, its third drop in four releases. The estimate stood at -0.2%. These weak numbers are raising concern about the health of the Japanese manufacturing industry.

Federal Reserve chair Janet Yellen, who is brand new on the job, didn’t generate much excitement in the markets when she testified before Congress earlier this week. She said that the Fed plans to continue trimming QE, provided that the employment picture continues to improve and inflation rises. She acknowledged that even though the unemployment rate has improved steadily, the recovery in the labor market is far from complete and the Fed plans to keep interest rates at ultra-low levels. Yellen, who took over as Fed chair on February 1, is expected to continue the policies of her predecessor, Bernard Bernanke.

With the US economy pointed in the right direction, the Federal Reserve has implemented two tapers of $10 billion to the QE scheme, reducing QE to $65 billion each month. We could see another taper when the Fed meets in March. Former Fed chair Bernard Bernanke took his time making the decision, and the taper train will be hard to stop, barring any unexpected downturns in the economy. The Fed plans to wind down QE in $10 billion installments, completing the process by the end of 2014.

USD/JPY for Friday, February 14, 2014

USD/JPY February 14 at 11:20 GMT

USD/JPY 101.77 H: 102.40 L: 101.57

USD/JPY Technical

• USD/JPY has edged lower in Friday trade. The pair dropped below the 102 line earlier in the European session.
• 102.53 is the next line of resistance. This is followed by resistance at 103.30, which has held firm since late January.
• 101.19 is providing support. Next is the key level of 100.00, which has remained intact since November.
• Current range: 101.19 to 102.53

Further levels in both directions:

• Below: 101.19, 100.00, 99.57 and 98.65
• Above: 102.53, 103.30, 104.17, 105.70, 106.85

OANDA’s Open Positions Ratio

USD/JPY ratio is pointing to gains in long positions in Friday trading. This is not consistent with what we are seeing from the pair, as the yen has posted gains. Long positions continue to comprise a solid majority in the USD/JPY ratio, indicating trader bias towards the dollar switching directions and moving higher against the yen.

The yen is back below the 102 line in Friday trading. USD/JPY is steady in the European session.

USD/JPY Fundamentals

• 13:30 US Import Prices. Estimate -0.1%.
• 14:15 US Capacity Utilization Rate. Estimate 79.4%.
• 14:15 US Industrial Production. Estimate 0.2%.
• 14:55 US Preliminary UoM Consumer Sentiment. Estimate 80.6 points.
• 14:55 US Preliminary UoM Inflation Expectations.

*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.