USD/JPY – Yen Continues To Show Volatility

The Japanese yen has had a bumpy week, as we continue to see strong movement from USD/JPY. The pair is currently pushing higher and is trading in the low-104 range in Wednesday’s European session. In economic news, Japanese Preliminary Machine Tools posted a strong gain of 28%. Later in the day, Japan will release manufacturing and inflation data. In the US, today’s key event is Core PPI. As well, we’ll get a look at the Empire State Manufacturing Index. On Tuesday, US retail numbers were a mix, as Core Retail Sales beat the estimate while Retail Sales weakened.

US retail sales numbers painted a mixed picture on Tuesday. Retail Sales dropped sharply to 0.2%, down from 0.7% in November. However, this figure matched the forecast. Core Retail Sales took the opposite route, jumping to 0.7%, compared to 0.4% the month before. This easily beat the estimate of 0.4%. The greenback has responded with gains against the struggling Canadian dollar.

Earlier this week, Japanese Current Account posted a deficit of 0.05 trillion, slightly larger than the estimate of a deficit of 0.02 trillion. Although the monthly deficit was small, there is concern in the markets, since it marks the first time that Japan posted three straight deficits since records have been kept. This is largely due to the weak yen, which has driven up the price of imports. Meanwhile, inflation has risen to the 1% level, but this is still well below the government target of 2.0%.

Last week’s disappointing Non-Farm Payrolls report may have created some concern in the markets, but is unlikely to change the Federal Reserve’s path of tapering QE, which it started just this month. In December, outgoing Fed chair Bernard Bernanke strong hinted that the Fed planned to wind up QE by the end of 2014, reducing the asset-purchase program by increments of $10 billion at each meeting. The Fed next meets for a policy meeting on January 28, and the question is will the Fed reduce QE by another $10 billion, down to $65 billion each month. Most analysts feel that one bad employment report will not affect the taper schedule and we will see a reduction in QE at the next meeting.

USD/JPY for Wednesday, January 15, 2014

USD/JPY January 15 at 11:55 GMT

USD/JPY 104.27 H: 104.47 L: 104.09

USD/JPY Technical

• USD/JPY has posted modest gains in Wednesday trading. The pair touched a high of 1.0447 during the Asian session.
• 104.17 has switched to a support role as the pair moves to higher ground. This is a weak line which could be tested if the dollar retracts. This is followed by a strong support level at 103.30.
• On the upside, 105.70 is the next line of resistance. This is followed by a resistance line at 106.85, which has remained intact since September 2008.
• Current range: 104.17 to 105.70

Further levels in both directions:

• Below: 104.17, 103.30, 102.53, 101.19 and 100.00
• Above: 105.70, 106.85, 107.73 and 108.77

OANDA’s Open Positions Ratio

USD/JPY ratio has reversed positions in Wednesday trading and is pointing to gains in short positions. This is not reflected in what we are seeing from the pair, as the dollar has posted modest gains. Long positions have a majority in the USD/JPY ratio, indicating trader bias towards the dollar continuing to move to higher ground.

The dollar continues to post gains at the expense of the yen on Wednesday. We could see stronger movement from the pair in the North American session, as the US releases key inflation data later in the day.

USD/JPY Fundamentals

• 3:45 Japanese 30-year Bond Auction. Actual 1.67%.
• 5:59 Japanese Preliminary Machine Tool Orders. Actual 28%.
• 13:30 US PPI. Estimate 0.5%.
• 13:30 US Core PPI. Estimate 0.1%.
• 13:30 US Empire State Manufacturing Index. Estimate 3.2 points.
• 15:30 US Crude Oil Inventories. Estimate -0.7M.
• 19:00 US Beige Book.
• 23:50 Japanese Core Machinery Orders. Estimate 1.2%.
• 23:50 Japanese Tertiary Industry Activity. Estimate 0.8%.
• 23:50 Japanese Corporate Goods Price Index. Estimate 0.4%.

*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.