USD/JPY – Dollar Sinks after Bernanke Comments

The yen got a badly needed break, and has recorded sharp gains after US Fed Chair Bernard Bernanke testified before Congress on Wednesday. USD/JPY was down almost 200 points, and was trading in the mid-101 range in the European session on Thursday. In other news, The Federal Reserve released the minutes of its last policy meeting, and US Existing Home Sales missed its estimate. The Bank of Japan released its monthly report on Thursday, and the US releases two key events – Unemployment Claims and New Home Sales.

If anyone was expecting Bernard Bernanke’s testimony to shake up the markets, they certainly were not disappointed. The US dollar was broadly weaker after the Fed Chair’s remarks on Wednesday, and the yen took full advantage, as it posted sharp gains against the US currency. Bernanke initially stated that tightening monetary policy could hurt the US recovery. However, he later said that a decision to scale back QE could be taken in the “next few meetings” if the US economy improves. Meanwhile, the QE program continues at full steam, as the Fed purchases $85 billion in assets every month. 

Almost overshadowed by Bernanke’s remarks in Congress was the release of the minutes from the FOMC’s last policy meeting. The minutes indicate that the US recovery will have to gain more traction before the Fed winds down QE. Policy members were split, as some suggested scaling back QE in June (at the next policy meeting), while others wanted to increase QE, given the weak inflation readings we are seeing. It should be noted that the FOMC minutes relate to a meeting which took place at the beginning of May, in contrast to the fresh testimony of Bernanke on Wednesday.

The yen may have bought a break on Wednesday, but this could be a short-lived move as the yen remains under pressure from the US dollar. The weak currency has resulted in the cost of imports rising dramatically, and this could increase the size of Japan’s trade deficits. Meanwhile, minutes of the Bank of Japan’s most recent policy meeting indicated that the BOJ was not making any changes to its monetary policy. The BOJ is moving ahead with its plan to expand the supply of money in the economy, and plans to pump in JPY60 – 70 trillion yen a year.

 USD/JPY for Thursday, May 23, 2013

USD/JPY 101.73 H: 103.56 L: 100.83

USD/JPY Technical

USD/JPY has dropped sharply, breaking below the 102 line. The pair is testing 101.81 on the upside. This line could face more activity today from the volatile pair. On the downside, the pair is receiving support at 100.54. This is followed by 100, which has held firm since early May.

• Current range: 101.81 to 102.60

Further levels in both directions:

• Below: 101.81, 100.54, 100, 99.57 and 99.48
• Above: 102.60, 103.75, 104.94, 105.87 and 106.55

OANDA’s Open Positions Ratio

USD/JPY ratio has shifted directions, and is pointing to movement towards long positions. This is not reflected in the current movement of the pair, as the pair remains volatile, with sharp moves in both directions. The ratio is close to an even split between long and short positions, indicating that trader sentiment is closely split as to what to expect next from the pair.

The yen is flexing some muscle, courtesy of Bernanke’s testimony, in which he left open the possibility of terminating QE. At the same time, the BOJ is moving full steam ahead with its aggressive easing, and this could drive the pair higher. We could see more movement from the pair during the day, as the US releases key employment and housing data later.

USD/JPY Fundamentals

• 5:00 Bank of Japan Monthly Report.
• 10:05 US FOMC Member James Bullard Speaks.
• 12:30 US Unemployment Claims. Estimate 347K.
• 13:00 US Flash Manufacturing PMI. Estimate 51.6 points.
• 13:00 US HPI. Estimate 0.9%.
• 14:00 US New Home Sales. Estimate 429K.
• 14:30 US Natural Gas Storage. Estimate 90B.

*Key releases are highlighted in bold

*All release times are GMT

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