USD/JPY – Volatile as Pair Tests 95 Level

USD/JPY has been showing strong volatility in Monday trading. In the Asian session, the dollar lost ground, as the pair dropped sharply and put pressure on the 94 level. The pair fell following the news that the Cyprus bailout package would include a tax on all bank  deposits in Cypriot banks. In the European session, the dollar has recovered some of its earlier losses, and was trading just above the 95 line. In economic news, the week is starting with just one release, the US HB Housing Market Index. There are no Japanese releases scheduled until Wednesday.

USD/JPY took a hit following the announcement of the Cyprus bailout. The agreement was reached over the weekend between the EU, IMF and the Cypriot government. The bailout includes an unusual provision of a one-time tax on bank deposits, which is expected to raise 5.8 billion euros, covering more than half of the 10 billion euro bailout. Although Cyprus does not boast a large economy, there was concern that if the country went into bankruptcy, the contagion could affect the entire Eurozone and reignite the debt crisis. In return for the bailout, Cyprus has agreed to trim its deficit, consolidate its banking sector and raise taxes. The markets reacted negatively to the announcement, reflecting a fear that the tax on deposits could lead to bank runs in other Eurozone countries struggling with high debts, which threatens to destabilize the zone.

Nobody is worried about bank runs in the US, but the health of the economy and pace of recovery continues to weigh on the markets. After excellent US employment and retail sales numbers earlier in the week, Friday’s releases were a big disappointment. The well-respected UoM Consumer Sentiment dropped to 71.8 points, well off the estimate of 78.2 points. The Empire State Manufacturing Index also lost ground, falling to 9.2 points, and missed the estimate of 9.8 points. There was some positive news, as Industrial Production was higher, rising 0.7%. This beat the estimate of 0.4%. The markets will be keeping a close eye on this week’s Federal Reserve policy meeting, which is often a market-mover and could affect the direction of USD/JPY.

Taking a look at Japan, the powerful Bank of Japan will welcome its new governor next week, as Parliament approved the nomination of Haruhiko Kuroda, who has left his position as head of the Asian Development Bank. Kurudo’s appointment will likely lead to further monetary easing in Japan, as the new governor has repeatedly said that the BOJ must take more action to raise inflation in order to breathe some life in a listless Japanese economy. In addition to Kuroda, Parliament approved the nominations of Kikuo Iwata and Hiroshi Nakaso as deputy chiefs at the central bank. Kuroda is seen as an ally of Prime Minister Abe, who has made eliminating deflation in the economy a top priority. Kuroda has pledged to reach the BOJ’s inflation target of 2% within two years, and the markets are expecting more monetary easing as soon as Kuroda takes over. So, traders can expect quite a bit of activity from USD/JPY. The Japanese currency has plunged 20% against the dollar since November, and further monetary easing will likely result in an even weaker yen.

USD/JPY for Monday, March 18, 2013

USD/JPY 95.14 H: 95.11 L: 94.31

USD/JPY is showing volatility in Monday trading. The pair fell sharply in the Asian session, In the Asian session, and came close to the 94 line. The pair has recovered in the European session, and is back above the 95 level. There is weak resistance at 95.27, and this line could continue to see activity. There is stronger resistance at 95.27. On the downside, 94.59 is the next support level. This is followed by 93.14, which has held steady since early March.

• Current range: 94.59 to 95.27

Further levels in both directions:

• Below: 94.59, 93.14, 92.53 and 91.48
• Above: 95.27, 96.02, 97.24, 98.45, 99.38 and 99.98

OANDA’s Open Position Ratios

USD/JPY is pointing to movement in the direction of long positions in Monday trading. This is consistent with what we are seeing in the movement of the pair, as the dollar has recovered and pushed above the 95 line. The ratio continues to be close to evenly divided, indicating that trader sentiment is split as to where the pair is headed. Meanwhile, USD has shown strong movement in both directions.

USD/JPY has been busy as we start the new trading week, with the pair dropping sharply but then recovering. Will the volatility continue? We’ll have to wait until Tuesday for some key releases out of the US, so we could see the pair level off and remain in the low-95 range.

USD/JPY Fundamentals

• 14:00 US NAHB Housing Market Index. Estimate 48 points

*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.