The Japanese yen was up sharply on Monday following Japanese elections on Sunday. The yen gained about 100 points against the dollar as Prime Minister Abe’s coalition government won a majority in the upper house of parliament. In Tuesday European session, USD/JPY was trading in the mid-95 range. Taking a look at economic releases, there are only three releases on Tuesday – US HPI, Richmond Manufacturing Index and Japanese Trade Balance. On Monday, US Existing Sales disappointed, coming in well below the estimate.
There was good news for Japanese Prime Minister Shinzo Abe on Sunday, as the ruling coalition, led by Abe’s LDP party, won a majority of the 121 seats contested in elections to the upper house of parliament. This gives the coalition control of both the upper and lower houses, and greatly strengthens Abe’s position as prime minister. Abe’s aggressive economic platform is starting to show results, with improving data and signs of inflation in the economy. The government has stated its wants to implement deregulation steps in order to promote growth, but this promises to be a stiff challenge, as such measures promise to be unpopular with special interest groups and others who have supported Abe until now.
Monday started off with just one US release, and it failed to impress the markets. Existing Home Sales slid from 5.18 million to 5.08 million. Clearly, the markets were expecting too much, with an estimate of 5.27 million. The markets will be hoping for better news from New Home Sales on Wednesday. This indicator has now improved for the past three consecutive releases. The housing industry is a vital component of economic growth, and both of these housing releases are market-movers.
Tuesday has only a few releases, but the markets will be keeping an eye on the Richmond Manufacturing Index. Although this indicator is considered a minor release, traders should keep in mind that it can have an impact on the movement of the dollar, as it helps provide analysts with a snapshot of the health and direction of the US manufacturing sector. This indicator looked very sharp in the June reading, following two weak readings. Last week, the Empire State Manufacturing Index and Philly Fed Manufacturing Index looked sharp, easily beating their estimates. If the Richmond indicator can keep pace, it could signal that the manufacturing industry, which has been a sore spot in the US recovery, is on the right track, which would be bullish for the dollar.
The G20 wrapped up a meeting of finance ministers over the weekend in Moscow. Monetary policy was high on the agenda, as the delegates released a statement that future monetary policy moves would be “carefully calibrated and clearly communicated”. This is in response to the recent market turmoil we’ve experienced following statements out of the Federal Reserve with regard to QE tapering. The Fed has not always sounded consistent, and predictably, the resulting uncertainty led to all sorts of speculation and rocked the market. Leaders of the G20 will meet in St. Petersburg in September, and a final draft statement from the Moscow meeting said that a plan to increase jobs and growth and rebalance debt would be ready for the September meeting.
USD/JPY for Tuesday, July 23, 2013
USD/JPY 99.47 H: 99.64 L: 99.15
USD/JPY pushed below the 100 level on Monday, giving the key line some breathing room. On Tuesday, we are not seeing much movement. The pair dropped to a low of 99.15 in the Asian session, but has moved higher. 100 is providing weak resistance. This is followed by a stronger resistance level at 100.85.
On the downside, the pair is testing support at 99.45. This line has already seen action on Tuesday. Will the yen push below this level? This is followed by a support level at 98.43.
- Current range: 99.45 to 100.00
Further levels in both directions:
- Below: 99.45, 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 continues the trend we have seen since late last week, with almost no change so far on Tuesday. This is reflected in the current movement of the pair, as USD/JPY is trading very quietly. Long positions continue to enjoy a sizeable majority of open positions, indicating that trader sentiment is biased in favor of the pair moving upwards.
- 13:00 US HPI. Estimate 0.9%.
- 14:00 US Richmond Manufacturing Index. Estimate 7 points.
- 23:50 Japanese Trade Balance. Estimate -0.58T.
*Key releases are highlighted in bold
*All release times are GMT