USD/JPY – Yen Rallies As Markets Wait for US Employment Data

After crossing above the 100 level, the Japanese yen has fought back and has posted strong gains against the dollar since Wednesday. In Thursday’s European session, the pair was trading in the mid-99 level. In economic news, Japanese Core Machinery Orders improved in August, but still fell well below the market forecast. In the US, we’ll get a look at the week’s first key event, with the release of Unemployment Claims. There are no Japanese releases on Thursday.

In Japan, there was disappointing news on the manufacturing front, as Core Machinery Orders came in at a flat 0.0% in August. This was an improvement from the July reading of -2.7%, but was well below the estimate of 2.5%. Earlier in the week, Corporate Goods Price Index posted its best reading in two years, with a gain of 2.4%. This strong reading points to increasing inflation in the Japanese economy, a cornerstone of the Abe government’s economic platform.

The Bank of Japan released its minutes from its August policy meeting on Monday. The minutes show that BOJ policymakers are confident that the aggressive monetary stimulus program is succeeding in boosting the economy. The BOJ noted that wages and household incomes have increased a positive sign for increased consumer spending. Although the economy is improving, the public debt continues to balloon. The government is considering a sales tax increase in 2014, in order to reduce the debt. Such a step will not be popular, but will be easier for the government to introduce if the economy is improving.

Over in the US, employment data has weakened recently, giving Thursday’s Unemployment Claims release added significance. Last week, both Unemployment Claims and Non-Farm Payrolls fell short of expectations, and JOLTS Job Openings didn’t look any better earlier this week. The markets continue to speculate about when the Fed will start to reduce QE, in which the Fed currently purchases $85 billion every month. There’s a strong likelihood that it will happen before the end of the year, but we’re unlikely to see a move by the Fed before the US posts better employment numbers.

The Syrian crisis has taken on a new twist, as US military action, which seemed a foregone conclusion in late August, is currently on the backburner. The US and Russia are spearheading intensive efforts to come up with a diplomatic solution to the crisis. Under the proposed plan, Syria would hand over its entire arsenal of chemical weapons to the international community to be destroyed. Speaking on US television earlier in the week, President Obama said that he would delay any military action as long as a diplomatic solution was possible, but that a strike against Syria was still on the table. If the diplomatic efforts gain momentum and the crisis eases, we could see the safe-haven dollar lose ground.

USD/JPY for Thursday, September 12, 2013

USD/JPY September 12 at 12:30 GMT

USD/JPY 99.47 H: 99.90 L: 99.21

USD/JPY Technical

• USD/JPY continues to post losses. The pair touched a low of 99.21 late in the Asian session.
• On the downside, the pair is testing support at 99.45. This line could fall if the yen continues to improve. This is followed by support at 98.43.
• USD/JPY is facing resistance at the round number of 100. This is followed by stronger resistance at 100.85.
• Current range: 99.45 to 100

Further levels in both directions:

• Below: 99.45, 98.43, 97.83, 97.18 and 96.20
• Above: 100, 100.85, 101.66, 102.53 and 103.26

OANDA’s Open Positions Ratio

USD/JPY ratio is pointing to long positions in Thursday trading. This is not reflected in the pair’s current movement, as the yen continues to post gains at the expense of the dollar. The ratio continues to have a solid majority of long positions, indicative of strong trader bias towards the dollar continuing to move to higher ground.

The yen is back in 99 territory, as it rebounds against the dollar. We could see some volatility from USD/JPY during the day, with the US releasing Unemployment Claims.

USD/JPY Fundamentals

• 12:30 US Unemployment Claims. Estimate 332K.
• 12:30 US Import Prices. Estimate 0.6%.
• 13:00 FOMC Member William Dudley Speaks.
• 14:30 US Natural Gas Storage. Estimate 65B.
• 17:00 US 30-year Bond Auction.
• 18:00 US Federal Budget Balance. Estimate. -155.3B.

*Key releases are highlighted in bold

*All release times are GMT

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