USD/JPY has edged higher in Tuesday trading, but remains close to the 100 level. In the European session, the pair was trading in the 100.20 range. In economic news, Japanese Monetary Base continues to climb, as the Bank of Japan pumps more money into the economy. Japanese Cash Earnings improved, but fell short of the estimate. In the US, key releases continue to disappoint, as ISM Manufacturing PMI came in below the estimate. Today’s major release is US Trade Balance, and the markets are expecting a slightly higher deficit than last month.
What a difference a week makes in the life of a currency. A week ago, the yen was struggling, as it traded in the 1.0250 range. Fast forward to the first week in June, and it’s the US dollar that finds itself on the ropes. Recent Japanese major indicators have pointed upwards, highlighted by Tokyo Core CPI, a important inflation gauge. Although the indicator gained only 0.1%, this was an important milestone, as it was the first sign of inflation from the indicator in almost a year. The markets will be paying close attention to other inflation releases. There is a growing feeling that Abenomics and its war on deflation is starting to bear fruit, as deflation slowly recedes and economic activity increases. However, the markets will want to see more positive numbers before being convinced that the Japanese economy is on the right track.
In the US, we continue to see weak numbers from key releases. Last week, unemployment, GDP and housing numbers missed their estimates, and this week started in much the same fashion, as ISM Manufacturing PMI dropped below the 50-point level. The index posted a reading of 49.0 points, missing the estimate of 50.6 points. This marked the first time in 2013 that the PMI has pointed to contraction in the manufacturing sector.
Quantitative easing has become a hot topic, as the markets ponder whether the US Federal Reserve will scale back the current round of QE. Fed policymakers, including Fed Chair Bernanke, have hinted that QE could be wound up in the next few months. However, with the US continuing to alternate between good and bad economic releases, the Fed is unlikely to act before it is convinced that the US economy is improving. Much of the volatility we are seeing from the major currency pairs, including USD/JPY, can be attributed to market uncertainty about what action the Fed will take. Further hints from the Fed about scaling back QE will likely affect the currency markets.
USD/JPY for Tuesday, June 4, 2013
USD/JPY 99.97 H: 100.42 L: 99.33
USD/JPY has edged higher in Tuesday trading. On the upside, the pair is testing the key 100 level. This line has been busy this week as the pair continues to move above and below this level. Look for the pair to continue to pressure the 100 line. On the downside, the pair is receiving support at 99.57. This line has also seen action today and could break if the yen flexes some muscle. There is stronger support at 98.94.
- Current range: 99.57 to 100.00
Further levels in both directions:
- Below: 99.57, 98.94, 97.18 and 96.03
- Above: 100.00, 100.66, 101.81, 102.60 and 103.75
OANDA’s Open Positions Ratio
USD/JPY ratio is back in action after a lull on Monday. The ratio is pointing to movement towards short positions. This is not reflected in the current movement of the pair, which has edged higher. We continue to see a dominance by the open long positions, indicative of a bias towards the dollar moving higher.
USD/JPY continues to test the all-important 100 line, and we could see this level remain under pressure from the pair. The US releases Trade Balance later in the day, which could result in some volatility.
- 1:30 Japanese Average Cash Earnings. Estimate 0.6%. Actual 0.3%
- 3:45 Japanese Trade Balance. Actual 0.86%
- 12:30 US Trade Balance. Exp. -41.1B
- 14:00 IBD/TIPP Economic Optimism. Estimate 50.2 points
- 17:30 US FOMC Member Esther George Speaks
*Key releases are highlighted in bold
*All release times are GMT