USD/JPY – Sharp Losses for Yen After Fed Hints at Rate Hike

USD/JPY is steady on Thursday, following huge gains by the pair a day earlier. At the start of the North American session, USD/JPY is trading at the 119 line. On the release front, US Unemployment Claims dropped to 287 thousand, beating expectations. Later in the day, the US releases the Philly Fed Manufacturing Index. There are no Japanese releases on Thursday, but the BOJ will release a policy statement early on Friday. An unexpected announcement could cause some movement from USD/JPY.

The Japanese yen took a tumble on Wednesday after the Federal Reserve policy statement. Previous Fed policy statements have usually stated that the Fed would maintain low rates for a “considerable time”, but the December statement changed terminology, saying the Fed would be “patient” before raising rates. In a follow-press conference, Federal Reserve chair Janet Yellen was less ambiguous, saying that the Fed was unlikely to raise rates for the “next couple of meetings”. The markets took this to mean that a rate hike is in the works, but not before April. The yen was down sharply on the news as USD/JPY gained about 130 points on Wednesday.

Prime Minister Shinzo Abe received a new mandate on the weekend, as the ruling Liberal Democratic Party swept to victory in parliamentary elections, winning a comfortable majority in the lower house of parliament. However, Abe has been hard-pressed to prop up the weak economy and he was recently forced to scrap a controversial sales tax hike. Growth and inflation remain well below the government’s target and the BoJ’s radical monetary easing scheme has ravaged the yen, which remains close to the 120 level. With the BOJ expected to maintain or even ease its monetary stance, we’re unlikely to see much improvement from the Japanese currency in the near future.

USD/JPY for Thursday, December 18, 2014

USD/JPY December 18 at 13:45 GMT

USD/JPY 118.99 H: 119.00 L: 118.26

USD/JPY Technical

• USD/JPY was flat in the Asian session. The pair posted gains in the European session, breaking above resistance at 118.69. The pair continues to move higher in North American trade.
• 119.83 is a strong resistance line.
• 118.69 has reverted to a support role as the dollar has posted small gains. 117.94 is stronger.
• Current range: 118.69 to 119.83

Further levels in both directions:

• Below: 118.69, 117.94, 116.69, 114.57 and 113.16
• Above: 119.83, 120.63, 121.39 and 122.18.

OANDA’s Open Positions Ratio

USD/JPY ratio is pointed to gains in long positions on Thursday. This is consistent with the pair’s movement, as the dollar has posted small gains. The ratio has a majority of long positions, indicative of trader bias towards the dollar continuing to move higher.

USD/JPY Fundamentals

• 13:30 US Unemployment Claims. Estimate 297K. Actual 289K.
• 14:45 US Flash Services PMI. Estimate 57.1 points.
• 15:00 US Philly Fed Manufacturing Index. Estimate 26.3 points.
• 15:00 US CB Leading Index. Estimate 0.6%.
• 15:30 US Natural Gas Storage. Estimate -61B.

*Key releases are highlighted in bold

*All release times are GMT

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