USD/JPY – Yen Rally Continues

The Japanese yen continues to climb higher against the US dollar. USD/JPY is trading in the mid-102 range in Friday’s European session. The yen has posted a tremendous rally, climbing about 200 points since Wednesday. In economic news, US Unemployment Claims posted another respectable reading but Existing House Sales continued its downward trend. The week wraps up on a quiet note, with no Japanese or US releases on Friday.

Over in the US, Unemployment Claims was unchanged at 326 thousand, another strong reading for one of the most important economic indicators. This beat the estimate of 331 thousand, the third straight week that the reading has surpassed the forecast. US Existing Home Sales was unable to keep pace, however. The key indicator dropped to 4.87 million, down from 4.90M a month earlier and shy of the estimate of the 4.94 million. This was the indicator’s fourth consecutive drop, adding to concern about the health of the US housing industry.

The Japanese yen has taken advantage of a weakening US dollar, which has retreated against the major currencies this week. The yen also received some help on Thursday from a weak Chinese Manufacturing PMI, which sent nervous investors to the safe-haven Japanese currency. The key PMI dropped below the 50-point level for the first time since June, coming in at 49.6 points, missing the estimate of 50.6 points. A reading below 50 indicates contraction. Earlier in the week, the BOJ announced that its aggressive monetary plan would continue. Under the scheme, the BOJ will continue to expand the monetary base by 60-70 trillion yen annually. The Bank noted that the Japanese economy continues to recover at a moderate pace, with GDP for 2013 expected to expand by 2.7%, but weaken to a 1.4% gain in 2014. Inflation is projected at 0.7% gain in 2013, jumping to 3.3% in 2014.

Worries over lack of inflation are not restricted to Europe or Japan, as the US has also been plagued by persistently low inflation, an indication of an underperforming economy. This was underscored by Core CPI, which posted a weak gain of just 0.1% in December. Producer Price Index posted a gain of 0.4%, reversing directions after three consecutive declines. Last week, Chicago Fed President Charles Evans said that the low rate of U.S. inflation is “both puzzling and worrisome,” and enough reason to maintain low interest rates, even if the employment picture continues to brighten. Meanwhile, the markets will be watching carefully to see if the Federal Reserve continues with another QE taper next week. Such a move could give the faltering dollar a strong boost.

USD/JPY for Friday, January 24, 2014

USD/JPY January 24 at 10:40 GMT

USD/JPY 102.62 H: 103.59 L: 102.52

USD/JPY Technical

• USD/JPY continues to post strong losses in Friday trading. The pair has dropped to a low of 102.52 in the European session as the dollar remains under pressure.
• 103.30 has reverted to a resistance role as the yen moves to higher ground. This is followed by resistance at 104.17.
• On the downside, the pair is testing support at 102.53. Will USD/JPY break below this line during the day? The next support level is 101.19, which has remained intact since late November.
• Current range: 102.53 to 103.30

Further levels in both directions:

• Below: 102.53, 101.19, 100.00 and 99.57
• Above: 103.30, 104.17, 105.70, 106.85 and 107.73

OANDA’s Open Positions Ratio

USD/JPY ratio continues to point to long positions in Friday trading, despite continuing losses by the dollar. This is a result of numerous short positions being covered, resulting in a higher percentage of open long positions. Long positions have a solid majority in the USD/JPY ratio, indicating trader bias towards the dollar reversing its current slide and moving higher.

The yen continues to manhandle the retreating US dollar on Friday. The dollar remains under strong pressure in the European session and we could see further gains by the yen during the day.

USD/JPY Fundamentals

• Day 3 – World Economic Forum Annual Meetings in Davos, Switzerland
• There are no US or Japanese releases on Friday

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.