USD/JPY – Yen Lower as Dollar Flirts With 100

The US dollar continues to chip away at the yen at the start of the new trading week. USD/JPY has pushed above the critical 100 level in the Monday’s European session. Taking a look at Monday’s events, the markets are closed in Japan for a holiday. The markets will have plenty of data to review, as the US releases key Core Retail Sales, Retail Sales and the Empire State Manufacturing Index.

Japanese releases have shown improvement recently. Manufacturing, housing and retail sales are all pointing upwards. No less important are inflation figures, which have risen modestly. The Japanese government and BOJ are waging an all-out battle to eliminate deflation, which has hobbled the economy for years. At its policy meeting last week, the Bank of Japan sounded cautiously optimistic about the economy, and reiterated that it would use quantitative and qualitative monetary easing to achieve an inflation level of 2% .The BOJ did not adjust its aggressive monetary policy, which entails doubling the monetary base to JPY 270 trillion by the end of 2014. The extreme monetary policy has also had a tremendous negative impact on the yen, as the Japanese currency has fallen to multi-year lows. 

Last week, the yen posted sharp gains at the expense of the dollar, following the release of the minutes from the Fed’s last policy meeting, as well as dovish remarks from Fed chair Bernard Bernanke. The minutes indicated that Federal Reserve policymakers remain deeply divided over when to scale down the current round of QE, whereby the Fed purchases $85 billion in assets each month. About half of the Fed policymakers favor scaling down QE before the end of 2013, while others feel that the employment market is still too fragile for the Federal Reserve to take any action. The dollar continued to lose ground as Federal Reserve chair Bernanke gave a speech in which he said that the Fed would maintain a loose monetary policy for the foreseeable future, due to low levels of inflation and a high US unemployment rate. In the meantime, the resilient dollar has since recovered much of its last week’s losses to the yen, as USD/JPY trades very close to the 100 level.

The US ended the week on a mixed note. UoM Consumer Sentiment disappointed as it missed expectations. The key indicator improved in June to 83.9 points from 82.7, but this fell well short of the estimate of 85.3 points. However, the markets appeared to focus on the fact that the indicator posted a respectable gain and remains at high levels, so the dollar was not hurt. PPI, an important inflation index, looked strong as it jumped from 0.5% to 0.8%. The estimate stood at 0.5%, and this was the best showing since October 2012.

USD/JPY for Monday, July 15, 2013

USD/JPY 100.05 H: 100.17 L: 99.07

USD/JPY Technical

USD/JPY was steady in the Asian session, trading close to the 99.30 line. The pair has climbed higher in the European session and broken above the 100 line. This line could see further activity on Monday. The next support level is at 99.57. On the upside, the pair faces resistance at 100.85, protecting the 101 level. This is followed by resistance at 101.66.

Current range: 100.00 to 100.85

Further levels in both directions:

• Below: 99.57, 98.43, 97.83, 97.18 and 0.9620
• Above: 100.00, 100.85, 101.66, 102.52 and 103.22 

OANDA’s Open Positions Ratio

USD/JPY ratio is showing movement towards short positions in Monday trading. We are not seeing this reflected in the pair’s current movement, as the dollar has come out strong and posted gains. The movement in the ratio could be an early indication that the pair will lose its upward momentum and reverse direction.

The US dollar is continuing where it left off on Friday, pushing higher against the yen. The pair has barreled past the 100 line, will the upward trend continue? We could see some volatility from USD/JPY after the US releases some key retail sales numbers later on. 

USD/JPY Fundamentals

• 12:00 US FOMC Daniel Tarullo Speaks.
• 12:30 US Core Retail Sales. Estimate 0.5%.
• 12:30 US Retail Sales. Estimate 0.7%.
• 12:30 US Empire State Manufacturing Index. Estimate 5.2 points.
• 14:00 US Business Inventories. Estimate 0.2%.

*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.