USD/JPY – Yen Moves Higher, Tests 97 Line

The yen continues to post gains against the US dollar in Friday trading. In the European session, the pair is trading slightly above the 97 line. The Japanese currency has been moving higher for most of the week and continues to pressure the US dollar. In economic news, Japanese inflation indicators met market expectations. Over in the US, today’s key release is Core Durable Goods Orders. The markets will also be keeping a close eye on the UoM Consumer Sentiment, an important consumer confidence indicator. On Thursday, US Unemployment Claims came in higher than expected, as the US employment market continues to struggle. There are no Japanese releases on Friday.

It’s been a rough week for US employment releases. On Thursday, Unemployment Claims came in at 350 thousand, above the estimate of 343 thousand. This weak figure came on the heels of Non-Farm Payrolls, which slipped to a six-month low. The US unemployment rate dipped to 7.2%, a five-year low, but this does not point to increased employment, as the participation rate remained at 63.8%, its lowest level since 1978. These figures indicate that the US labor market continues to have difficulty creating new jobs. The weak readings are putting pressure on the US dollar, and the yen has responded with gains against the greenback.

Japanese inflation indicators continue to point upwards. Tokyo Core CPI, the most important Japanese inflation index, posted a gain of 0.3%, close to the estimate of 0.4%. National Core CPI and Corporate Services Price Index both recorded solid gains of 0.7%, within market expectations. Increasing inflation in the economy has been a cornerstone of the government’s loose monetary policy, which has resulted in a severely weakened yen. The government has set an inflation target of 2% inflation by 2015, and seems to be well on its way to achieving this goal.

There was some optimism and relief in the markets last week, as Republicans and Democrats finally reached an agreement last week to reopen the government and raise the debt ceiling, following weeks of fighting in Congress. 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 have agreed to discuss budget issues and try to reach a long-term agreement before December 13. The bottom line? The US could face a repeat of the shutdown and debt crisis started in just a few months. At the same time, the public is angry at lawmakers for allowing the budget deadlock to drag on for weeks, and with congressional elections only a year away, politicians on Capitol Hill should think twice before plunging the country into another fiscal and political crisis.

The US government is again functioning and a default has been averted, but the agreement hammered out in Congress last week provides short-term relief only, as it raises the debt ceiling until early February and funds the government until mid-January. The underlying budgetary issues remain unresolved, consumer confidence has been shaken and employment numbers are not looking good. Given this situation, the Fed is unlikely to push the taper trigger until early 2014, perhaps not before March or April.

USD/JPY for Friday, October 25, 2013

USD/JPY October 25 at 10:35 GMT

USD/JPY 97.24 H: 97.40 L: 96.94

USD/JPY Technical

• USD/JPY continues to move lower on Friday, as the pair trades in the low-97 range. The pair dipped below the 97 line early in the European session but has bounced back.
• The support level of 97.18 is under strong pressure and could fall if the yen continues to improve. This is followed by strong support at the round number of 96.00.
• On the upside, 0.9815 is providing resistance. This is followed by strong resistance at 98.92, which is protecting the 99 line.
• Current range: 97.18 to 98.15

Further levels in both directions:

• Below: 97.18, 96.00, 95.06 and 94.20
• Above: 98.15, 98.92, 100, 101.19 and 102.53

OANDA’s Open Positions Ratio

USD/JPY ratio is showing movement towards short positions in Friday trading. This is reflected in the movement of the pair, as the yen continues to post 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 moving higher.

The yen continues to make inroads against the dollar. With the US releasing key manufacturing data later on Friday, we could see some volatility from the pair if the reading is not in line with market expectations.

USD/JPY Fundamentals

• 12:30 US Core Durable Goods Orders. Estimate 0.6%.
• 12:30 US Durable Goods Orders. Estimate 1.7%.
• 13:55 US Revised UoM Consumer Sentiment. Estimate 75.8 points.
• 13:55 US Revised UoM Inflation Expectations.
• 14:00 US Wholesale Inventories. Estimate 0.3%.

*Key releases are highlighted in bold

*All release times are GMT

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