USD/JPY – Quiet as Markets Eye BOJ Meeting

USD/JPY is holding steady in Wednesday trading, as the pair was trading in the mid-93 range in the European session. The markets are eagerly waiting for the upcoming BOJ policy meeting, which will be held on Thursday and Friday. In the US, Factory Orders came in within market expectations. We could see some movement from USD/JPY after the US releases two key events later today – ADP Non-Farm Employment Change and ISM Non-Manufacturing PMI.

The Cyprus bailout agreement may have been signed, but the drama continues and questions remain. Strict capital controls are still in place in Cyprus in order to prevent a run on the banks. Under the agreement, bank deposits below EUR1000,000 are safe, but larger accounts with the Bank of Cyprus will be facing a haircut of up to 60%. An amount of 37.5% of these deposits will be converted into bank shares, and up to 22.5% more could be grabbed in order to prop up the Bank of Cyprus’ reserves. This steep tax is expected to have a strong negative impact on the country’s business sector, and the government has admitted that the country is in recession. In order to help the ailing economy, the government plans to lift a ban on casinos and provide tax exemptions on business profits that are reinvested on the island. President Nicos Anastasiades has acknowledged that the bailout agreement is a bitter pill for Cypriots, but said that refusing the agreement would have meant the collapse of the banking sector and could have led to Cyprus’ exit from the Eurozone.

The markets will be closely monitoring the Bank of Japan policy meeting on Thursday. This will be the first meeting under the helm of the new BOJ Governor, Haruhiko Kuroda. He has made no secret of his staunch support for further aggressive monetary easing, although he has been short on specifics. Last week, Kuroda revealed a few of his closely-held cards and stated that the BOJ will consider abolishing a rule which limits the amount of government bonds that the BOJ is permitted to purchase. Further, the central bank will discuss extending the maturity of such bonds from the current three years to five years.  The yen has firmed up this week as there is speculation that Kuroda will not announce more aggressive easing until the next BOJ policy meeting at the end of the month. If the BOJ does surprise the markets with some new easing moves, we could see the yen take a tumble.

Taking a look at the US, last week was uncharacteristic in that key releases were weak across the board. Manufacturing, housing, consumer confidence and employment figures all fell below expectations. The month of April did not start on the right foot, as the ISM Manufacturing PMI dropped and missed the estimate. If the week continues in a downward trend, we will likely see a negative reaction from the markets. So the markets will be carefully monitoring today’s employment and manufacturing releases, hoping to s see a turnaround from last week.

USD/JPY for Wednesday, April 3, 2013

USD/JPY 93.50 H: 93.68 L: 93.32 

 USD/JPY Technical

The markets are cautious in Wednesday trading, as the pair’s proximate resistance and support levels remain in place (R1 and S1 above). The pair is facing resistance at 94.59. This line has held firm since the last week in March. This is followed by resistance at 95.27. On the downside, 93.14 continues to provide support, but this line could be tested if USD/JPY moves lower. We next find support at 92.53.

• Current range: 93.14 to 94.59

Further levels in both directions:

• Below: 93.14, 92.53, 91.48 and 90.69
• Above: 94.59, 95.27, 96.02, 97.24, 98.45

OANDA’s Open Position Ratios

USD/JPY ratio is not showing any movement in Wednesday trading. This lack of activity is reflected by the pair, which is showing little movement. The ratio is comprised of a solid majority of long positions, indicating that trader sentiment is biased towards the US dollar making gains at the expense of the yen.

The pair is trading quietly, as the markets wait for the BOJ policy meeting on Thursday. The yen has made slow but steady gains against the US recently, and we’ll see if this continues once the markets hear what the new BOJ governor has to say. The US will release key data later in the day, so we could see some movement from USD/JPY.

USD/JPY Fundamentals

• 12:15 US ADP Non-Farm Employment Change. Estimate 203K
• 14:00 US ISM Non-Manufacturing PMI. Estimate 55.9 points
• 14:30 US Crude Oil Inventories. Estimate 1.8M
• 21:00 US FOMC Member James Bullard Speaks

*Key releases are highlighted in bold

*All release times are GMT

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