USD/JPY – Yen Pushes Below 100 After Abe Election Win

The Japanese yen has crossed below the important 100 level, as USD/JPY trades just below this barrier in Monday’s European session. The yen received some help as Prime Minister Abe’s coalition government won an election on Sunday, which gives Abe’s government control of both houses in parliament. The G20 meeting wrapped up in Moscow on the weekend, and the G20 promised that any changes in monetary policy would be done in a careful way. Taking a look at economic releases, it’s a quiet start to the week, with just one release on Monday – US Existing Home Sales. There are no Japanese releases on Monday.

There was good news for Japanese Prime Minister Shinzo Abe on Sunday, as the ruling coalition, led by Abe’s LDP party, won a majority of seats in elections to the upper house of parliament. This gives the coalition control of both the upper and lower houses, and greatly strengthens Abe’s position as prime minister. Abe’s aggressive economic platform is starting to show results, and the government enjoys a 60% approval rating. The government has stated its wants to implement deregulation steps in order to promote growth, but this promises to be a stiff challenge, as such measures will be unpopular with special interest groups and others who have supported Abe until now.

G20 finance ministers and central bankers wrapped up their two-day meeting in Moscow on the weekend. The delegates pledged that future changes to monetary policy would be “carefully calibrated and clearly communicated”. This is likely a hint to the recent market turmoil in response to statements from the Federal Reserve regarding possible QE tapering. The Fed has not always sounded consistent, and predictably, the resulting uncertainty has rattled the markets. Leaders of the G20 will meet in St. Petersburg in September, and a final draft statement from the Moscow meeting noted that a plan to increase jobs and growth and rebalance debt will be ready for the September meeting.

In Washington, US Federal Reserve chair Bernard Bernanke was at center stage on Wednesday and Thursday, as he testified before Congress. However, Bernanke did not add anything we haven’t heard before, and his testimony was not a market-mover by any means. Bernanke reiterated that the Fed’s monetary policy would remain accommodative, and added that when he stated the Fed’s bond-buying program was “not on a preset course”. This vague statement leaves the Fed plenty of wiggle room to scale down QE should it choose to do so. Bernanke reiterated that any decision to scale down QE would depend on improving economic conditions. He noted that present US unemployment levels (7.6%) were “well above” normal levels, and was careful to stay away from presenting any specific time deadlines for scaling down QE. So, the message from the Fed to the markets seems to be that QE tapering is not on the table before the economy improves and unemployment falls.

Almost lost in the focus on Bernanke’s testimony on Capitol Hill were a couple of strong US releases on Thursday. Unemployment Claims fell sharply from 360 thousand to 334 thousand, well below the estimate of 344 thousand. On the manufacturing front, the Philly Fed Manufacturing Index surged, rising from 12.5 to 19.8 points. This was its best showing since March 2011, and easily surpassed the estimate of 8.5 points. If this week’s US key releases can continue the upward move, the US dollar could post gains against its major rivals.

USD/JPY for Monday, July 22, 2013

USD/JPY 99.95 H: 100.38 L: 99.61

USD/JPY Technical

USD/JPY has moved lower in Monday trading. The 100 line continues to be tested, and has seen plenty of action in the Asian and European sessions. Currently, the pair is trading just below this significant barrier. The next resistance level is at 100.85. On the downside, the pair is followed by a support level at 99.45. This is not a strong line, and could face pressure if the yen shows more strength. This is followed by a support level at 98.43.

Current range: 99.45 to 100.00

Further levels in both directions:

• Below: 99.45, 98.43, 97.83, 97.18 and 0.9620
• Above: 100.00, 100.85, 101.66, 102.52 and 103.22

OANDA’s Open Positions Ratio

USD/JPY ratio continues the trend we saw late last week, showing almost no movement on Monday. This is not reflected in the current movement of the pair, with the yen posting modest gains to start off the week. Long positions continue to enjoy a sizeable majority of open positions, indicating that trader sentiment is biased towards the pair reversing direction and the dollar posting gains against the yen.

The 100 level continues to be at the center of attention, as it has faced strong pressure in Monday’s Asian and European sessions. Will the pair continue to test the 100 level? Monday’s sole release is US Existing Home Sales, and this market-mover could cause some volatility if the markets are caught by an unexpected reading.

USD/JPY Fundamentals

14:00 US Existing Home Sales. Estimate 5.27M

*Key releases are highlighted in bold

*All release times are GMT

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