USD/JPY – Steady ahead of Fed Meeting

USD/JPY is steady in Wednesday trading. The pair was trading in the mid-97 range in the European session. The markets are treading cautiously as they wait to see what the Fed will have to say at today’s policy meeting. In economic news, Japanese Average Cash Earnings declined for the second straight month, posting a decline of 0.6%. However, this was good enough to beat the estimate of -1.0%. Later on Wednesday, Japan will release Monetary Base and the minutes of the most recent policy meeting of the Bank of Japan. In the US, the markets will be hoping for good news from Wednesday’s key events – ADP Non-Farm Employment Change and the ISM Manufacturing PMI. This will be followed by the FOMC Statement at the Federal Reserve Policy Meeting.

At its recent policy meeting, the BoJ noted that it could take more than two years to reach its 2% inflation target. This possibility has been underscored by recent Japanese inflation releases, which continue to point to deflation in the economy, despite the best efforts of the BOJ to create some inflation. This could mean that the central bank will resort to further easing measures later in the year. In the meantime, the yen has enjoyed a good week, taking advantage of a US dollar which has looked shaky against the major currencies.

Will he or won’t he? This question is looming large, as the markets anxiously wait to see whether Mario Draghi and his colleagues at the ECB will press the trigger and lower in interest rates for the first time since last July. The Eurozone continues to stagnate with poor releases, highlighted by another record high for Eurozone Unemployment Rate, which edged to 12.1%, up from 12.0%. Speculation that the ECB will take action and lower rates is growing, and most analysts are expecting a cut in rates. All eyes will be on the ECB,  which will announce the new rate on Thursday. Whether the ECB takes action or leaves the rate as is, we could be in for some volatility from the euro.

The US has treated the markets to weeks of poor data, but this week has looked much better. On Monday, US Pending Home Sales recorded a gain of 1.5%, beating the forecast of 1.1%. The next day, CB Consumer Confidence jumped to 68.1 points, blowing past the estimate of 61.4 points. The markets will be hoping that the modest trend continues on Wednesday, as the US releases key employment and manufacturing numbers. The Federal Reserve meets on Wednesday, and policy makers are expected to continue with the QE program. This is a dollar-negative event, so we could see a reaction from USD/JPY following the FOMC Statement.

USD/JPY for Wednesday, May 1, 2013

USD/JPY 97.50 H: 98.12 L: 97.36

USD/JPY Technical

USD/JPY remains steady in Tuesday trading, as the proximate resistance and support levels remain in place (R1 and S1 above). On the downside, the pair continues to receive support at 97.24. The next support level is at 96.03, protecting the 96 level. The pair faces resistance at 98.45. This is followed by resistance at 99.57.

• Current range: 97.24 to 98.45

Further levels in both directions:

• Below: 97.24, 96.03, 95.27 and 94.19
• Above: 98.45, 99.57, 100, 100.54 and 101.81

OANDA’s Open Position Ratios

USD/JPY is not showing a lot movement in Wednesday trading. This  reflected in the pair, which has been steady. Long positions make up a solid majority in the ratio, indicating that trader sentiment is strongly biased towards the dollar pushing higher at the expense of the yen.

After coming very close to the 100 level, the yen has fought back, and is now trading in the mid-97 range. We could see some movement later today, as the US releases key employment and manufacturing data. As well, today’s FOMC meeting should be treated as a market-mover, which could affect the direction of USD/JPY.

USD/JPY Fundamentals

• 1:30 Japanese Average Cash Earnings. Estimate -1.0%. Actual -0.6%
• 12:15 ADP Non-Farm Employment Change. Estimate 154K
• 13:00 US Final Manufacturing PMI. Estimate 52.1 points
• 14:00 US ISM Manufacturing PMI. Estimate 51.0 points.
• 14:00 US Construction Spending. Estimate 0.7%
• 14:00 US ISM Manufacturing Prices. Estimate 52.6 points.
• 14:30 US Crude Oil Inventories. Estimate 1.2M.
• All Day: US Total Vehicle Sales. Estimate 15.2 M.
• 18:00 US FOMC Statement.
• 18:00 US Federal Funds Rate. Estimate <0.25%.

*Key releases are highlighted in bold

*All release times are GMT

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