USD/JPY – Sagging Yen at 104 Level

USD/JPY starts off the week at high levels, as the pair trades at the 104 line in the European session on Monday. On the release front, the only US release is New Home Sales. The markets are expecting the key indicator to improve. In Japan, the sole event on the calendar is the Services Producer Price Index. The markets are expecting another strong reading for July.

Financial leaders and central bankers met at Jackson Hole for a conference, and the markets were all ears as Fed chair Janet Yellen delivered the keynote address on Friday. Any hopes for some dramatic news were dashed, as Yellen did not provide any clues as to the timing of a rate hike. She reiterated that the US job market still needed to improve, so employment numbers remain a crucial factor in any rate move by the Fed. There is a divergence in monetary stance between the ECB and the Fed, as the Fed  is winding up QE, while the ECB may be forced to provide stimulus to the sagging Eurozone economy.

US releases wrapped up the week on a high note. Unemployment Claims improved to 298 thousand, lower than the estimate of 302 thousand. The key indicator has now beaten the estimate in six of the past seven readings. Thursday’s other key event, the Philly Fed Manufacturing Index, shot higher in July, rising to 28.0 points. The markets had expected the indicator to slip to 19.7 points. There was more good news on the housing front, as Existing Home Sales improved to 5.15 million, well above the estimate of 5.01 million. This marked the highest level we’ve since September 2013. What is particularly encouraging is that the data stems from a wide range of sectors, which points to balanced economic growth.

The Federal Reserve released its policy meeting minutes on Wednesday. The minutes were hawkish in tone, with the Fed saying that an interest rate hike could come sooner rather than later if employment numbers continue to improve. The Fed said that the economy continues to improve, but the QE program, which is scheduled to wind up in October, will not be accelerated. Once the asset purchase scheme is terminated, the guessing game regarding the timing of a rate hike will only intensify.

USD/JPY for Monday, August 25, 2014

USD/JPY August 25 at 12:55 GMT

USD/JPY 104.03 H: 104.26 L: 103.86

USD/JPY Technical

• USD/JPY broke above resistance at 104.17 late in the Asian session but was unable to consolidate and retracted. The pair is trading just above the 104 line.
• 103.07 has strengthened in support as the pair trades at higher levels.
• On the upside, 104.17 is under strong pressure. Will the pair break through this barrier? There is stronger support at 105.44.
• Current range: 103.07 to 104.17

Further levels in both directions:

• Below: 103.07, 102.53, 101.19 and 100
• Above: 104.17, 105.44, 107.68 and 108.57

OANDA’s Open Positions Ratio

USD/JPY ratio is almost unchanged on Monday. This is not consistent with the pair’s movement, as the yen has posted small gains. The ratio has a majority of short positions, indicative of trader bias towards the yen continuing to gain ground.

USD/JPY Fundamentals

• 14:00 US New Home Sales. Estimate 426K.
• 23:50 Japanese Services Producer Price Index. Estimate 3.7%.

*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.