USD/JPY – Yen Edges Lower after Weak Japanese Data

USD/JPY has edged lower following the release of disappointing Japanese data on Thursday. The pair is putting strong pressure on the 91 line. Manufacturing PMI pointed to continuing contraction in the manufacturing sector. Preliminary Industrial Production fell well below expectations, and Average Cash Earnings posted a second straight decline. Housing Starts also was well below the estimate. In the US, the GDP release was very weak, posting its first  decline since 2009. The Federal Reserve wrapped up its policy meeting, and said that QE3 would continue. The markets are keeping a close eye on today’s highlight, US Unemployment Claims.

Japanese releases were an all around disappointment. Manufacturing PMI did climb to 47.7 points, but a reading below the 50 level indicates contraction in the industry. The indicator has not been above 50 since May. Preliminary Industrial Production bounced back from a decline in the previous release, posting a gain of 2.5%. However, this was well short of the estimate of 4.2%. There was no relief from Average Cash Earnings, which declined 1.4%, way off the estimate of a 1.1% gain. It was the indicator’s second straight decline, and the worst showing since May 2011. Housing Starts climbed 10%, but this was well short of the forecast of 13.6%.The weak numbers, from a range of sectors, underscore that the Japanese economy remains weak, and has so far failed to respond to the government’s aggressive monetary measures.

US key releases continue to be mixed, pointing to a bumpy recovery. The markets got a jolt from an abysmal GDP reading, as the US economy declined by 0.1% in Q4. Although a very modest loss, there is bound to be negative market reaction, as this was the first decline since 2009, and the markets had anticipated a 1.1% gain. There was some postive employment news, as the ADP Non-Farm Employment Change came in at 192 thousand new jobs, well above the estimate of 164 thousand. The markets will be hoping that Thursday’s Unemployment Claims continue to shine, after some excellent readings recently.

All eyes were on the Federal Reserve this week, but there were no surprise developments as the powerful US central bank wrapped up a two-day policy meeting. Analysts were looking for clues as to an end date for the current Quantitative Easing program (QE3), but no such hints were forthcoming. The Fed stated it would continue its open-ended QE3 program until the outlook for the labor market “improves substantially”. This put to rest any doubts that the current round of QE, under which the Fed is purchasing $85 billion a month in securities, will be terminated anytime soon. At the same time, the Federal Reserve took note of increased job hirings, stronger consumer and business spending, and some improvement in the US housing sector. The Fed also maintained its ultra-low benchmark interest rate, saying there would be no change until unemployment drops below 6.5%. With US unemployment close to 8%, we will likely be hearing this refrain for the foreseeable future.

USD/JPY for Thursday, January 31, 2013

USD/JPY 91.00 H: 91.15 L: 90.74

USD/JPY Technical

The Japanese yen is testing the 91 line, as the proximate support and resistance lines remain intact (S1 and R1 above). The pair is facing resistance at 91.30. This is followed by a stronger line at 91.94. On the downside, there is support close to the 91 level, at 90.91. This line is weak, and could face more activity during the day. The pair is receiving strong support at 90.23.

• Current range: 90.91 to 91.30.

Further levels in both directions:

• Below:90.91, 90.23, 89.85, 89.31, 88.55, 87.95, and 87.36.
• Above: 91.30, 91.94, 92.53, 93.14 and 93.42.

OANDA’s Open Position Ratios

The USD/JPY ratio continues to point to movement in the direction of long positions. The ratio is now evenly split between the long and short components, as trader sentiment remains evenly divided as to where USD/JPY will head next. If the current move in the ratio continues, we could see the US dollar make further inroads against the yen.

The yen continues to have trouble gaining its footing. It is testing the 91 line, which has seen activity all week. We can expect the fluctuations to continue, as the US releases key employment data later on Thursday.

USD/JPY Fundamentals

• 1:30 Japanese Average Cash Earnings. Estimate 1.1%. Actual -1.4%.
• 5:00 Japanese Housing Starts. Estimate 13.6%. Actual 10%.
• 12:30 US Challenger Job Cuts.
• 13:30 US Unemployment Claims. Estimate 362K.
• 13:30 US Core PCE Price Index. Estimate 0.1%.
• 13:30 US Employment Cost Index. Estimate 0.6%.
• 13:30 US Personal Spending. Estimate 0.4%.
• 13:30 US Personal Income. Estimate 0.7%.
• 14:45 US Chicago PMI. Estimate 51.1 points.
• 15:30 US Natural Gas Storage. Estimate -202B.

*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.