USD/JPY – Yen Fights Back, Dips Below 93 Line

The Japanese yen has shown some improvement against the US dollar in Thursday trading, and has pushed below the 93 level. There are a host of US releases today, including four major publications – Core CPI, Unemployment Claims, Existing Home Sales and the Philly Fed Manufacturing Index. There are no Japanese releases on Thursday.

Late Wednesday, the Federal Reserve released the minutes of its most recent FOMC meeting. At the meeting, there was discussion of winding down the current round of QE due to concern about the negative effect that QE could have on the financial markets. Previously, the Fed had stated that it expected to continue with QE until unemployment dropped to 6.5%. The Fed has been purchasing a record amount of assets since December, kept its key interest rate close to zero and expanded its balance sheet to over $3 trillion, but the US economy has not responded as quickly as hoped.

The plunging Japanese yen continues to have a major impact on Japan’s trade balance. A weaker currency has boosted exports, but also raised the prices of imports, including commodities such as oil and natural gas. This resulted in a record trade deficit in January of JPY 1.63 trillion. The higher cost of imports is weighing on the Japanese government’s attempt to kick-start the economy by increasing inflation through increased domestic consumption. Thus, the weak yen can be considered a “double-edged sword”, reviving exports but also driving up the cost of imported goods and materials to Japanese consumers and businesses. So far, the Japanese economy has not picked up speed, despite the efforts of the government and the Bank of Japan.

Finance ministers and central bank governors from the world’s leading economies huddled together at the G-20 meeting, and the final statement made reference to the recent volatility in exchange rates. The leaders pledged not to “target our exchange rates for competitive purposes”, and to move more rapidly to market-determined exchange rate systems. The G-20 statement did not make reference to Japan, which has come under fire for monetary policies which have led to free-fall in the value of the Japanese yen. G-20 leaders appear resigned to the yen continuing to slide, but do not want Japanese officials to make public statements which will pull down the currency. Thus, Japan’s major trading partners, although very concerned about the tumbling yen, have tacitly given Japan a green light to continue to stimulate its economy with further monetary easing measures and higher inflation, which will likely have a negative impact on the yen.

USD/JPY for Thursday, February 21, 2013

USD/JPY February 21 at 13:55 GMT

 USD/JPY 92.83 H: 93.86 L: 92.82

USD/JPY Technical 

In Thursday trading, USD/JPY has lost ground, dropping below the 93 line. The pair is receiving support at 92.53. Given the improving yen, this line cannot be considered safe. The next level of support is at 91.94. On the upside, the pair faces weak resistance at 93.14. This line could see further activity if the dollar can rebound from the current downward trend. There is stronger resistance at 93.73.

• Current range: 92.53 to 93.14

Further levels in both directions:

• Below: 92.53, 91.94, 91.30 and 90.91.
• Above: 93.14, 93.73, 94.59, 95.27, 96.06 and 97.48.

OANDA’s Open Position Ratios

USD/JPY is showing some movement in the direction of short positions. This activity is reflected in the current downward trend of the pair, as the yen has posted strong gains in Thursday trading. Further movement in the ratio in this direction would be an indication that trader sentiment expects the yen to continue to improve against the US dollar.

The yen has bounced back against the dollar, as USD/JPY is trading below the 93 level. Will the pair’s downward momentum continue? Much will depend on US releases later on Thursday, as the markets wait for the publication of four key releases, all of which can be considered market-movers. If there are some unanticipated readings, we could see a reaction from USD/JPY.

USD/JPY Fundamentals

• 13:30 US Core CPI. Estimate 0.2%.
• 13:30 US Unemployment Claims. Estimate 353K.
• 13:30 US CPI. Estimate 0.1%.
• 14:00 US Flash Manufacturing PMI. Estimate 55.6 points.
• 15:00 US Existing Home Sales. Estimate 4.89M.
• 15:00 US Philly Fed Manufacturing Index. Estimate 1.1 points.
• 15:00 US Mortgage Delinquencies.
• 15:00 US CB Leading Index. Estimate 0.2%.
• 15:30 US Natural Gas Storage. Estimate -119B.
• 16:00 US Crude Oil Inventories. Estimate 1.9M.
• 17:30 US FOMC James Bullard Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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