USD/JPY – Dollar Post Gains After Bernanke

USD/JPY has been showing some volatility on Friday. The dollar posted gains on Thursday after US Federal Reserve chair Ben Bernanke left the door open for QE tapering. The pair was trading in the mid-100.00 range in Friday’s European session. Bernanke didn’t really say anything new, as he stated that the Fed’s monetary policy would remain accommodative and QE tapering would not begin until the US economy showed further improvement. Meanwhile, there were two excellent releases out of the US on Thursday. Unemployment Claims dropped and came in below the estimate, while the Philly Fed Manufacturing Index jumped to its highest level in over two years. There are no releases on Friday. In Japan, there was only one release on Friday – All Industries Activity. The indicator jumped from 0.4% to 1.1%, but fell short of the estimate of 1.3%. Moscow is hosting a G20 meeting of finance ministers and central bankers on Friday and Saturday.

There was plenty of anticipation ahead of US Federal Reserve chair Bernard Bernanke’s testimony in Washington on Wednesday and Thursday, but anyone looking for drama and excitement was sorely disappointed. What Bernanke served was essentially the same menu we’ve seen before with regard to QE. The Fed chief sounded extremely vague when he stated that the Fed bond-buying was “not on a preset course”, leaving the Fed plenty of wiggle room to scale down QE should it choose to do so. Bernanke reiterated that any decision to scale down QE would depend on improving economic conditions. He noted that present unemployment levels (7.6%) were “well above” normal levels, and was careful to stay away from presenting any time deadlines for scaling down QE. So, the message from the Fed to the markets seems to be that QE tapering is not on the table before the economy improves and unemployment falls.

Has Abenomics finally kicked some life into the Japanese economy? The Bank of Japan released the minutes of its last policy meeting earlier this week, and the BOJ continues to sound more optimistic about the Japanese economy, saying that a moderate recovery is underway. The central bank was pleased by the increase in exports due to the weak yen and stronger manufacturing data, although it noted that deflation still remained a problem. The Japanese government has made the elimination of deflation a cornerstone of its economic agenda, and clearly this battle will continue. Meanwhile, the yen continues to struggle at multi-year lows against the dollar, and with the BOJ committed to its aggressive monetary policy, we can expect the currency to continue to trade at very low levels.

USD/JPY for Friday, July 19, 2013

USD/JPY 100.42 H: 100.86 L: 99.81

USD/JPY Technical

USD/JPY is active in Friday trading. The pair dropped sharply in the Asian session, and dipped below the 100 line. However, the yen surrendered these gains in the European session, as the pair climbed to the mid-100.00 range. USD/JPY is receiving support at the 100 line, but given the volatility we have been seeing, this line cannot be considered strong. This is followed by a support level at 99.45. On the upside, the pair faces resistance at 100.85. This line was tested earlier, and is currently providing weak resistance. There is stronger resistance at 101.66. This line has remained intact since late May.

Current range: 100.00 to 100.85

Further levels in both directions:

• Below: 100.00, 99.45, 98.43, 97.83, 97.18 and 0.9620
• Above: 100.85, 101.66, 102.52 and 103.22

OANDA’s Open Positions Ratio

USD/JPY ratio has reversed direction from Thursday, and is pointing to movement towards long positions on Friday. This is not reflected in the current movement of the pair, as the pair is showing little net movement so far, unable to sustain any momentum. Long positions continue to enjoy a sizeable majority of open positions, indicating that trader sentiment is biased towards the dollar posting gains against the yen.

The pair crossed below the 100 level earlier on Friday, but was unable to consolidate as the dollar recovered and pushed back into 100 territory. With no major releases out of Japan or the US today, it could be an uneventful end of the week for USD/JPY.

USD/JPY Fundamentals

• 4:32 Japanese All Industries Activity. Estimate 1.3%. Actual 1.1%
• Day 1 of G20 Meeting in Moscow

*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.