USD/JPY – Yen Lower Despite Upbeat Inflation Data

USD/JPY has weakened in Wednesday trading. The pair has dropped to the mid-98 range in Wednesday’s European session. In economic news, Japanese inflation indicators continue to point upwards, as Corporate Services Price Index posted a gain for the fourth consecutive month. In the US, CB Consumer Confidence dropped in August. The markets are hoping for more positive news today, as the US releases two key events – Core Durable Goods Orders and New Home Sales. There are no Japanese releases on Wednesday.

The markets have settled down after the US Federal Reserve stunned the markets in deciding not to taper QE at its policy meeting last week. Most analysts had expected the Fed to announce a scaling down of the present bond-buying program of $85 billion/mth by $10-15 billion. However, the Fed was of the opinion that US economic data, particularly employment numbers, did not justify scaling down QE at this time. Federal Reserve Bank of St. Louis President James Bullard shed some light on the dramatic move (or lack of) by the Federal Reserve. Bullard said the vote was close, but weaker US numbers led to a decision not to taper. He added that the Fed may go ahead with “small” reductions to QE at its next policy meeting in October.

In the US, the first key release of the week was a disappointment. CB Consumer Confidence dropped from 81.5 to 79.7 points in August, shy of the estimate of 79.9 points. It was the first time the indicator has dropped below the 80-point level since May. There was more bad news in the manufacturing sector, as the Richmond Manufacturing Index plunged from 14 points down to zero in August. This surprised the markets, which had expected a reading of 17 points. The markets will be looking for a turnaround from additional manufacturing data on Wednesday, with the release of Core Durable Goods Orders and Durable Goods Orders.

After years of deflation which have hobbled the Japanese economy, there are signs of inflationary trends, as the economy responds to the government’s aggressive economic platform. The Corporate Services Price Index rose 0.6% in August, edging out the estimate of 0.5%. The index has been posting releases below zero for years, but recent readings indicate that the economy is moving closer to the BOJ’s goal of reaching 2.0% annual inflation. We’ll get a look at the most important inflation indicator, Tokyo Core CPI, on Thursday. A strong release could give a boost to the Japanese yen.

USD/JPY for Wednesday, September 25, 2013

USD/JPY September 25 at 9:30 GMT

USD/JPY 98.47 H: 98.79 L: 98.39

USD/JPY Technical

• USD/JPY has dropped on Wednesday and is trading in the mid-98 range. The pair has been edging lower since late in the Asian session.
• The pair continues to face resistance at 99.45. This line has strengthened as the pair trades at lower levels. This is followed by resistance at the all-important 100 level.
• On the downside, USD/JPY is testing support at 98.43. There is stronger support at 97.83, which has remained intact since late August.
• Current range: 98.43 to 99.45

Further levels in both directions:

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

OANDA’s Open Positions Ratio

USD/JPY ratio has reversed directions on Wednesday, pointing towards short positions. This is not reflected in the pair’s current movement, as the dollar continues to push higher against the yen. The ratio is made up of a solid majority of long positions, indicative of a strong trader bias towards the US dollar continuing to move to higher ground.

The yen is struggling against the dollar. Later today the US releases key manufacturing and housing data, and we could see some volatility from USD/JPY if the readings surprise the markets.

USD/JPY Fundamentals

• 12:30 US Core Durable Goods Orders. Estimate 1.1%.
• 12:30 US Durable Goods Orders. Estimate 0.0%.
• 14:00 US New Home Sales. Estimate 422K.
• 14:30 US Crude Oil Inventories. Estimate -1.0M.

*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.