USD/JPY – Under Pressure As Markets Eye Fed Policy Meeting

The Japanese yen has shown some movement in Tuesday trading, but remains in the 90.40 range. The markets are keeping a close eye on the US Federal Reserve, which meets for a two-day policy meeting beginning on Tuesday. US releases started the trading week with mixed results. Durable Goods Orders data was positive, but Pending Homes Sales dropped sharply. In Japan, the lone release is Retail Sales. Today’s key release is US CB Consumer Confidence.

The yen continues to trade at very high levels, amid market anticipation of  further easing by the Bank of Japan. Is the plunging yen finally bearing fruit for the Japanese economy? The Japanese government seems to think so, as it raised its forecast of economic growth, stating that the Japanese economy is expected to grow by 2.5 percent in the next fiscal year. The government credited the weakening yen and higher demand for Japanese exports. This is a significant revision from the previous estimate of 1.7 percent growth. Meanwhile, Japan’s economy minister defended his government’s stimulus program at the World Economic Forum in Davos, Switzerland. Akira Amari stated that the government did not have a deliberate policy to weaken the yen, and that it was up to the market to determine the currency’s exchange rate. Perhaps Amari’s declaration should be taken with a grain of salt. Just last week, the deputy economy minister, Yasutoshi Nishimura, said the government would not have a problem if the yen slid to 100. This seems to indicate that the Japanese government does indeed have at interest in  lowering the value of the yen.

Taking a look at economic releases, US Core Durable Goods Orders posted a lower gain than in the previous reading. However, the rise of 1.3% easily beat the estimate of 0.8%. Durable Goods Orders looked even better, jumping 4.6%. This crushed the estimate of a 1.8% gain. The markets were pleased with the strong manufacturing data, but the housing numbers that followed were a big disappointment. Last week, New Home Sales dipped to 369 thousand units, way below the estimate of 387 thousand. This shocked the markets, which had anticipated a modest gain of 0.5%. Pending Home Sales fared no better, plunging by 4.3%. This was the indicator’s worst showing since last May. The two key housing indicators points to weakness in the US housing industry, a critical component for economic growth. The bumpy US recovery will continue to limp along if these numbers don’t improve soon.

The markets will be keeping an eye on developments in Washington, as the Federal Reserve holds a two-day policy meeting. The Fed has not been in the headlines lately, but is busy at work, as it increased its purchases of securities in January from $40 billion to $85 billion. This has pushed the Fed’s balance sheet to a record $3 trillion. Despite these measures, the US recovery remains slow, and unemployment is still high at 7.8%. The markets will be paying close attention to the Fed’s take on the economy, with the markets hoping to hear a hint about when the Fed might end its current round of QE. Minutes from the most recent FOMC pointed to members being divided between those in favor of ending QE in mid-2013, versus those who wish to continue it to a later date.

USD/JPY for Tuesday, January 29, 2013

90.47  H: 91.02 L: 90.33

USD/JPY Technical

In Monday’s Asian session, USD/JPY broke through the 91 line, but has since retracted. The pair is receiving weak support at 90.23, which is protecting the 90 level. This is followed by support at 89.85. On the downside, 90.91 is providing resistance. This line was breached earlier today and could see further action. There is stronger resistance at 91.30.

• Current range: 90.23 to 90.91.

Further levels in both directions:

• Below: 90.23, 89.85, 89.31, 88.55, 87.95, 87.36 and 86.97.
• Above: 90.91, 91.30, 91.94 and 92.53.

OANDA’s Open Position Ratios

The USD/JPY ratio is not showing any change at present. The currency pair is active, as USD/JPY tested the 91 line earlier. The ratio favors short positions slightly, indicating that trader sentiment is split as to the next direction of the pair. Will it again test the 91 line, or will we see some consolidation closer to the 90 level? Traders should keep an eye on the ratio, which has been fairly active recently.

USD/JPY remains under pressure, and has been displaying some volatility. Any annoncements from the Federal Reserve meeting could affect market sentiment and the movement of the pair, so we could see the fluctuation continue.

USD/JPY Fundamentals

• 14:00 US S&P/CS Composite-20 HPI. Estimate. 5.5%.
• 15:00 US CB Consumer Confidence. Estimate 64.8 points.
• 23:50 Japanese Retail Sales. Estimate 0.4%.

*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.