USD/JPY – Yen Lower After Weak Current Account

USD/JPY has reversed direction in Tuesday trading, as the dollar has recovered from losses sustained a day earlier. In Tuesday’s European session, the pair is trading slightly above the 97 level. In economic news, Japanese Current Account came in well below market expectations. Later today, the Bank of Japan Policy will release the minutes of its previous policy meeting. There are only two minor releases out of the US, so the markets will be paying more attention to the FOMC minutes, scheduled for release on Wednesday. It’s Day 8 of the shutdown, amid little indication that the crisis will end anytime soon.

Japan’s Current Account showed little change in September, posting a surplus of 0.35 trillion yen. However, this was well off the estimate of 0.65 trillion. The weak reading can be attributed to higher import costs due to a weak yen, which has plunged since the government introduced its monetary and fiscal policy, aimed at eliminating deflation. Experts note that the current account balance could turn into deficits in the near future as the government and BOJ show no signs of adjusting economic policy.

The US government shutdown has entered its second week, as the Democrats and Republicans continue to play the blame game. Republicans had demanded that the Democrats delay implementation of the 2010 health care act, known as Obamacare, before agreeing to pass a budget. The Democrats have refused, saying the budget must first be passed before any discussions can be held. There are increasing concerns that a prolonged shutdown could affect the fragile US recovery. If the shutdown does continue, we could see some instability in the markets this week, and the US dollar, which is already under strong pressure, could lose ground.

As political squabbling has held up the US budget, a far more serious crisis is lying just around the corner – the debt ceiling. The US has a debt worth $16.7 trillion, and will run out of funds to service the debt by October 17, unless Congress authorizes raising the debt ceiling. Otherwise, the US could potentially default on its obligations, which could cause chaos in the markets. A US default has not been priced in the markets, and such a cataclysmic event has never happened. With just 10 days until the ceiling is reached, we could see the markets get restless if the politicians in Washington don’t get their act together quickly.

There was a lot of expectation that the Federal Reserve would taper QE in September, and the markets were caught by surprise when the Fed balked and maintained the levels of the bond-buying program at $85 billion/mth. However, things have changed dramatically in the past few weeks, with the budget deadlock in Washington as well as growing fears about a debt ceiling crisis. Meanwhile, distortions and delays in key economic data will make it difficult for investors to gauge what the Fed is planning. On Friday, Non-Farm Payrolls and the Unemployment Rate were cancelled, and further data will have to be postponed as the shutdown continues. The FOMC minutes will be released on Wednesday, and this event is often a market-mover.

USD/JPY for Tuesday, October 8, 2013

USD/JPY October 8 at 11:30 GMT

USD/JPY 97.09 H: 97.18 L: 96.66

USD/JPY Technical

• USD/JPY has moved higher in Tuesday trading. The pair moved higher in the Asian session, crossing above the 97 line late in the session.
• The pair is testing resistance at 97.18. Will this line hold firm? This is followed by resistance at 97.87.
• On the downside, USD/JPY is receiving support at the round number of 96.00. This is followed by support at 95.06.
• Current range: 96.00 to 97.18

Further levels in both directions:

• Below: 96.00, 95.06, 94.20 and 93.34
• Above: 97.18, 97.83, 98.43, 99.45 and 100

OANDA’s Open Positions Ratio

USD/JPY ratio is pointing to movement towards short positions in Tuesday trading. This is not reflected in the pair’s current movement, as the dollar has moved higher against the yen. The ratio is dominated by long positions, indicative of a strong trader bias towards the pair’s upward trend continuing.

USD/JPY is trading just above the 97 level. With no major releases due out of the US on Tuesday, we could see the pair continue to stay close to the 97 level.

USD/JPY Fundamentals

• 5:00 Japanese Economy Watchers Sentiment. Estimate 52.2 points. Actual 52.8 points.
• 11:30 US NFIB Small Business Index. Estimate 95.2 points.
• 14:00 US IBD/TIPP Economic Optimism. Estimate 46.2 points.
• 23:50 Bank of Japan Monetary Policy Meeting Minutes.

*Key releases are highlighted in bold

*All release times are GMT

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