USD/JPY – Yen Fights Back Against Dollar

The Japanese yen finally broke out of its lump, posting sharp gains against the US dollar in Friday trading. USD/JPY was trading in the mid-92 range. However, USD/JPY continues to trade at its highest levels in over two years, and the markets is expecting further easing measures, which will weigh on the Japanese currency. In economic news, US Unemployment Claims continued to disappoint, as the key employment indicator missed its target for the second straight reading. Japanese data was also weak, with Current Account falling to a three week low.

The Japanese yen is showing surprising strength in Friday trading, and USD/JPY has shed over 100 points. There were no dramatic releases or events to explain the drop, which could well be a case of traders locking in profits, following the recent losses sustained by the yen. The markets are expecting further easing measures by the Japanese authorities, so it seems unlikely that the yen’s dramatic descent is over. Japanese Current Account was not impressive, as the key indicator dropped to JPY 0.10 trillion, well below the estimate of 0.18 trillion. This was the weakest showing since last November, and the disappointing data reflects less demand for the Japanese currency.  In the US, Unemployment Claims continued to disappoint the markets. The key indicator had some sizzling readings in January, but has fallen from its dizzying heights in a hurry. For the second straight week, the key indicator missed the market estimate. There were 368 thousand new claims, missing the forecast of 361 thousand. The markets are concerned that the weaker employment numbers will weigh on the fragile US recovery. If we continue to see further weak US data, we will likely see a reaction in the currency markets.

Japan’s trade partners are none too pleased with the plunging yen, which has lost 12% of its value in the past several months. The weakening yen has made their goods less competitive in international markets, reducing exports and hurting their economies. Japanese officials have consistently denied manipulating the value of the yen, arguing that aggressive monetary easing is necessary to kick-start the weak economy and combat deflation. Meanwhile, the markets are bracing for more easing measures, underscored by comments from BOJ board member Takehiro Sato, who stated that reaching the government’s target of two percent will be difficult without further action.

USD/JPY for Friday, February 8, 2013

USD/JPY February 8 at 10:50 GMT

 92.43 H: 93.72 L: 92.17

USD/JPY Technical

USD/JPY has undergone a sharp correction, as the yen shows some strength. The pair is facing weak resistance at 92.53. This line could see further activity, as the pair is showing strong movement. This is followed by resistance at 9314. On the downside, there is support at 91.94. Given the volatility we are currently seeing, this line cannot be considered safe. This is followed by stronger support at 91.30.

• Current range: 91.94 to 92.53

Further levels in both directions:

• Below: 91.94, 91.30 and 90.91, 90.17 and 89.64.
• Above: 92.53, 93.14, 93.73, 94.59, 95.27 and 96.06.

OANDA’s Open Position Ratios

The USD/JPY ratio continues to sharp movement, but has reversed direction from Thursday, as the trend is currently towards short positions. This is consistent with the current downward trend, as the dollar has dropped sharply against the yen. We can expect the ratio to show significant movement while USD/JPY continues to be volatile.

After testing the 94 level earlier this week, USD/JPY has reversed direction, with the yen posting sharp gains against the dollar. However, this trend may prove to be short-lived, as the markets are expecting further easing steps in Japan, and the Japanese economy continues to stumble.

USD/JPY Fundamentals

• Thursday, 23:50 Japanese Current Account. Estimate 0.18T. Actual 0.10T.
• Friday, 1:00 US FOMC Member Charles Evans Speaks.
• Friday, 13:30 US Trade Balance. Estimate -45.7B.
• Friday, 15:00 US Wholesale Inventories. Estimate 0.5%

*Key releases are highlighted in bold

*All release times are GMT

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