USD/JPY – Yen Jumps As Congress Reaches Deal on Debt, Shutdown

The US dollar is broadly lower in Thursday trading, and the yen has also posted gains, as the pair trades close to the 98 line in Thursday’s European session. The Japanese currency has gained about 100 points so far and continues to pressure the retreating dollar. The markets are breathing easier as the Senate and House of Representatives voted on Wednesday to fund the government and raise the debt ceiling. In economic news, there are two major releases on the schedule – Unemployment Claims and the Philly Fed Manufacturing Index. There are no releases out of Japan on Thursday.

With the US staring at a sovereign default for the first time in its history, the Republicans and Democrats finally reached as deal in Congress on Wednesday to reopen the government and raise the debt ceiling. The agreement passed by wide margins in both the Senate and House. However, the deal provides short-term relief only – the government will be funded until January 15, while the debt limit will be raised until February 7. Both sides agreed to discuss budget issues and try to reach a long-term agreement before December 13. The Republicans appear to be the big losers in this sorry tale, as they failed to obtain any concessions regarding the Obama Health Care Act and are blamed by most of the public for precipitating an unnecessary political and fiscal crisis.

After weeks of bitter partisanship and political brinkmanship, Congress finally got its act together and voted to fund the government and raise the debt ceiling. The shutdown, which lasted for over two weeks and temporarily threw hundreds of thousand of federal employees out of work, is estimated to have cost the economy $24 billion. The cost of the debt crisis is harder to quantify, but has certainly eroded faith in the US economy and perhaps in the US dollar as well. This was underscored by a warning from Fitch Ratings on Tuesday, when the agency put US debt on a negative watch. Fitch stated that the crisis had cast doubt over the credit of the United States and had undermined confidence “in the role of the US dollar as the pre-eminent global reserve currency”.

With the market’s attention on the crisis in Washington, US economic releases, even major events, have been shunted to the backburners. However, Thursday’s US Unemployment Claims is a key release that could affect the US dollar. With major releases such as Non-Farm Payrolls suspended to the US shutdown, Unemployment Claims has magnified in its importance. Last week’s release was not considered accurate due to technical problems, so this week’s numbers are being eagerly awaited. The markets are bracing for another weak release, with an estimate of 357 thousand.

USD/JPY for Thursday, October 167, 2013

USD/JPY October 17 at 11:00 GMT

USD/JPY 98.05 H: 99.00 L: 97.81

USD/JPY Technical

• USD/JPY has been posting sharp losses in the Asian and European sessions. The pair dipped as low as 97.81 early in the European session.
• The pair is receiving support at 97.87. This is a weak line which was breached earlier and could fall if the yen continues to strengthen. This is followed by support at 97.18.
• On the upside, USD/JPY is facing resistance at 98.43. This is followed by a strong resistance line at 99.45.
• Current range: 97.87 to 98.43

Further levels in both directions:

• Below: 97.87, 97.18, 96.00, 95.06 and 94.20
• Above: 98.43, 99.45, 100 and 101.19

OANDA’s Open Positions Ratio

USD/JPY ratio has reversed direction on Thursday, pointing to movement towards long positions. This is not reflected in the movement of the pair, as the yen has posted sharp gains against the dollar. The ratio continues to be dominated by long positions, indicative of a strong trader bias towards the US dollar reversing direction and climbing higher.

USD/JPY has posted sharp losses and the pair is struggling to stay above the 98 line. We could see further movement from the pair in the North American session, as the US releases key employment and manufacturing data.

USD/JPY Fundamentals

• 12:30 US Unemployment Claims. Estimate 357K.
• 14:00 US Philly Fed Manufacturing Index. Estimate 15.4 points.
• 16:45 US FOMC Member Charles Evans Speaks.
• 16:45 US FOMC Member Esther George Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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