USD/JPY – Surging Dollar Breaks Through the 100 Level

USD/JPY finally pushed across the 100 level on Thursday. The pair was still going strong on Friday, as USD/JPY barreled past the 101 line in the Asian session. In economic news, US Unemployment Claims looked sharp, coming in below expectations. In Japan, Current Account missed the estimate, but did improve and post a surplus. On Friday, Japanese Economy Watchers Sentiment missed the estimate. In the US, the week wraps up with the Federal Budget Balance, and a speech by Fed Chair Bernanke at a Federal Reserve conference in Chicago.

There was some excitement in the markets, as USD/JPY finally lay claim to the psychologically important 100 summit. The pair had come close a couple of times, but retracted on each occasion. It was the first time since May 2009 that the pair found itself in three digit levels. The slumping yen has made Japanese exports more competitive on world markets, which contributed to an improved Japanese Current Account release on Thursday. Japan posted a surplus of JPY 0.34 trillion. This missed the estimate of JPY 0.48 trillion, but was a sharp improvement from the previous reading of JPY 0.00 trillion. Not surprisingly, Japan’s trading partners are not happy with the weakening yen, as they struggle to keep their exports competitive. South Korea, with an export-dependent economy, cut its interest rate by 0.25% on Thursday in order to boost growth and compete with the yen. The Japanese currency has already depreciated 14% against the dollar in 2013, and with the BOJ moving full steam ahead with aggressive monetary easing, we can expect the yen to continue to point downwards.

There was only one major release out of the US this week, and the dollar took advantage, as US Unemployment Claims looked sharp. There were 323 thousand new claims, well below the estimate of 333 thousand. This was the third week in a row that Unemployment Claims has come in below expectations. This points to an improving employment picture in the US, but the markets will want to see strong numbers from other sectors of the economy to be convinced that the US is headed in the right direction.

In China, Wednesday’s Trade Balance numbers looked sharp. After a rare deficit in the April reading, China reported a surplus of $18.2 billion in the May release. This beat the estimate of $15.5 billion, and was the best showing since February. However, traders should treat China’s trade data with caution, as the figures could be inflated to mask capital inflows into the country. Analysts have noted that a weak global economy has led to less demand for Chinese experts, so the figures being released by Chinese officials may not be accurate.

USD/JPY for Friday, May 10, 2013

USD/JPY 101.67 H: 101.67 L: 100.73

USD/JPY Technical

USD/JPY is on a tear. The pair pushed across the elusive 100 line on Thursday, and barreled past 101 earlier on Friday. On the downside, there is support at 100.54. Given the current volatility, this line cannot be considered safe. The next support level is at the psychologically important 100 level. The pair faces resistance at 101.81. This line has weakened and could be tested if the dollar continues its strong push upwards. The next line of resistance is at 102.57.

• Current range: 100.54 to 101.81

Further levels in both directions:

• Below: 100.54, 100, 99.57, 98.45 and 97.24
• Above: 101.81, 102.57, 103.75 and 104.94

OANDA’s Open Positions Ratio

USD/JPY is pointing to strong movement towards short positions in Friday trading. With the pair moving up sharply, this movement is likely due to a large number of long positions being filled. The ratio is now evenly divided between open long and short positions, indicating a split among traders as to what to expect next from the volatile pair.

The 100 level was finally broken and USD/JPY continues to move higher. With no major releases today, we can expect the pair to settle down and consolidate its sharp gains, as we wrap up the trading week.

USD/JPY Fundamentals

• 5:00 Japanese Economy Watchers Sentiment. Estimate 59.2 points. Actual 56.5 points.
• Day 1: G7 Meetings.
• 12:25 US FOMC Member Charles Evans Speaks.
• 13:30 US Fed Chairman Bernanke Speaks.
• 18:00 US FOMC Member Esther George Speaks.
• 18:00 US Federal Budget Balance. Estimate 108.3B.

*Key releases are highlighted in bold

*All release times are GMT

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