USD/JPY – Yen Continues to Improve

The Japanese yen continues to improve, as USD/JPY has dipped below the 92 line. The pair has now dropped about 150 points since the start of the week. With the markets jittery after the inconclusive election in Italy, we can expect further volatility from the pair. In the US, New Home Sales and Consumer Confidence both sparkled, easily beating their estimates. The markets will be monitoring testimony by Fed chair Bernard Bernanke, who is testifying before the US Senate Banking Committee. The only Japanese indicator on Tuesday, Retail Sales will be released later.

The yen has bounced back nicely after a weak start to the week. In early trading on Monday, USD/JPY jumped following reports that Prime Minister Abe was close to appointing Haruhiko Kuroda as the next governor of the Bank of Japan. The current governor, Masaaki Shirawaka, and two deputy governors will leave their positions in mid-March. Kuroda is the head of the Asian Development Bank, and is considered a proponent of aggressive monetary easing. Kuroda would likely to the line on the government’s current economic and monetary policy, which has seen the value of the yen plunge to multi-year lows in the past few months. There were also reports that one of the new deputy governors would be Kikuo Iwata, also seen as a supporter of strong monetary easing. If Kuroda is indeed appointed, we could see the yen sag yet again.

The markets received good news out of the US, as New Home Sales and Consumer Confidence both looked very sharp. Consumer Confidence rebounded nicely, climbing to 69.6 points. This crushed the estimate of 60.8. Not to outdone, New Home Sales climbed to 437 thousand, its best showing since May 2010. The estimate stood at 381 thousand. The Richmond Manufacturing Index, which had a dismal reading in January, climbed to 6 points, easily exceeding the forecast of -4. The markets will be hoping that the positive momentum continues into Wednesday, as the US releases key manufacturing and housing data.

Italian elections are traditionally boisterous and colorful events, and the results of this election certainly didn’t disappoint in that regard. The 5-Star Movement, which was largely a protest movement run by Beppe Grillo, a former comic, shocked pundits by winning the most votes. Grillo’s party now becomes the key to any chance of forming a coalition. The Center-left bloc, headed by Pier Luigi Bersani, won a majority in the lower house of parliament, but there was no clear winner in the upper house. This leaves the country in a political stalement, as any coalition cannot govern without forging a majority in both houses. Prime Minister Monti’s centrist bloc fared poorly at the polls, reflecting widespread voter dissatisfaction with the former Prime Minister’s severe austerity measures. The deadlock represented a worst-case scenario for the markets, which is concerned that political instability in Italy could affect the entire Eurozone.

The Federal Reserve will again be in the market spotlight on Tuesday, as Federal Reserve Chair Bernanke testifies before the US Senate Banking Committee. Recently, the Fed released the minutes of its most recent FOMC meeting. The minutes indicated that policymakers had discussed slowing or even stopping the current round of QE before the US employment situation improves, which was an about-face in the Fed’s stance. Previously, the Federal Reserve had stated that it would not terminate the current round of QE before the US unemployment rate fell to 6.5%. Bernanke will likely be questioned about this issue at the hearing.

 USD/JPY for Tuesday, Feb 26, 2013

USD/JPY Feb 26 at 16:00 GMT

USD/JPY 91.66 H: 92.74 L: 91.40

USD/JPY Technical

USD/JPY is sharply lower in Tuesday trading. The pair is receiving weak support at 91.30. This line could be tested if the yen continues to strengthen. The next support level is at 90.91. On the upside, 91.94 is providing weak resistance. This is followed by resistance at 92.53. 

• Current range: 91.30 to 91.94

Further levels in both directions:

• Below: 91.30, 90.91, 90.18, 89.34 and 88.19
• Above: 91.94, 92.53, 93.14, 94.59 and 95.27

OANDA’s Open Position Ratios

The USD/JPY ratio has switched directions, and is now pointing to movement towards long positions. This is not currently reflected in the movement by the pair, as the yen has been posting gains in Tuesday trading. The ratio is close to an even split between long and short positions, indicating that trader sentiment is divided as to which direction the pair will take.

The yen has rebounded strongly against the US dollar so far this week. Will the momentum continue, or will the dollar push back, buoyed by Tuesday’s strong economic releases? USD/JPY has shown a lot of movement, and traders should be prepared for more volatility from the pair.  

USD/JPY Fundamentals

• 14:00 US S&P/CS Composite-20 HPI. Estimate 6.7%. Actual 6.8%.
• 14:00 US HPI. Estimate 0.6%. Actual 0.6%.
• 15:00 US CB Consumer Confidence. Estimate 60.8 points. Actual 69.6 points.
• 15:00 US Fed Chairman Bernard Bernanke Speaks. Bernanke will testify on the Semiannual Monetary Policy Report before the Senate Banking Committee.
• 15:00 US New Home Sales. Estimate 381K. Actual 437K.
• 15:00 US Richmond Manufacturing Index. Estimate -4 points. Actual 6 points.

*Key releases are highlighted in bold

*All release times are GMT

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