USD/JPY – Slight Losses As Markets Eye US Inflation, Fed Minutes

USD/JPY has posted modest losses on Wednesday trading, as the pair trades below just below the 102 line in the European session. In economic news, Japanese All Industries Activity posted a decline and missed expectations. The Bank of Japan released its monthly report earlier in the day. It will be a busy day over in the US, with the release of two key events – Building Permits and the Producer Price Index. As well, we’ll get a look at the minutes of the most recent Federal Reserve meeting.

Recent US numbers have not impressed the markets. Retail Sales weakened in January, and the hiccups continue on the employment front, as Unemployment Claims were higher than expected last week. On Tuesday, the culprit was the Empire State Manufacturing Index. The important manufacturing indicator slid to 4.5 points in January, down sharply from 12.5 a month earlier. The estimate stood at 9.9 points. If the markets don’t see some improvement soon, the dollar could lose ground to its major rivals.

The Federal Reserve will release the minutes of its last policy meeting later on Wednesday, and traders should pay close attention to this event, which has been a market-mover in the past. At its last meeting, the Fed trimmed QE by another $10 billion, reducing the bond-buying scheme to $65 billion each month. Fed chair Janet Yellen has said that QE could be winded up by the end of 2014, provided that the economy behaves and there are no sudden downturns, particularly on the employment front.

On Tuesday, the BOJ said that its current monetary policy would continue. The Bank plans to maintain its increase of base money, its key monetary policy gauge, at an annual pace of 60-70 trillion yen. The BOJ added that it was pleased with economic activity, saying that the economy continues to recover at a moderate pace. With a sales tax increase scheduled in April, the Bank is sending the markets a signal that it has no plans to implement additional stimulus in the near future.

Japanese Preliminary GDP, which is released on a quarterly basis, started off the week on a disappointing note. The indicator posted a modest gain of 0.3% in Q4, down from 0.5% in the previous reading. This was well short of the estimate of 0.7% and was the lowest reading we’ve seen since Q1 of 2013. Meanwhile, inflation indicators continue to point upwards, after years of deflation which hobbled the economy. Last week the Corporate Goods Price Index posted a healthy gain of 2.4%, matching the forecast.

USD/JPY for Wednesday, February 19, 2014

USD/JPY February 19 at 12:15 GMT

USD/JPY 101.98 H: 102.33 L: 101.92

USD/JPY Technical

• USD/JPY has reversed directions in Wednesday trading, pointing lower. The pair has moved below the 102 line in the European session.
• 102.53 is providing resistance. The next resistance line is 103.30.
• 101.19 is the next support level. Next is the key level of 100.00, which has remained intact since November.
• Current range: 101.19 to 102.53

Further levels in both directions:

• Below: 101.19, 100.00, 99.57 and 98.65
• Above: 102.53, 103.30, 104.17, 105.70, 106.85

OANDA’s Open Positions Ratio

USD/JPY ratio is pointing to gains in short positions in Wednesday trading. This is consistent with what we are seeing from the pair, as the dollar has edged lower. Long positions continue to comprise a solid majority in the USD/JPY ratio, indicating trader bias towards the dollar turning around and posting gains against the yen.

The yen has made up some of this week’s losses, as USD/JPY trades just shy of the 102 level. We could see some movement from the pair in the North American session, as the US releases Building Permits, PPI and the Federal Reserve minutes.

USD/JPY Fundamentals

• 4:30 Japanese All Industries Activity. Estimate 0.2%. Actual -0.1%.
• 5:00 Bank of Japan Monthly Report.
• 13:30 US Building Permits. Estimate 0.98M.
• 13:30 US PPI. Estimate 0.2%.
• 13:30 US Core PPI. Estimate 0.2%.
• 13:30 US Housing Starts. Estimate 0.95M.
• 19:00 US FOMC Minutes.

*Key releases are highlighted in bold

*All release times are GMT

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