USD/JPY – Dollar Posts Gains Ahead of Key Japanese, US Numbers

We continue to see movement from USD/JPY, as the pair trades in the mid-101 level in Thursday’s European session. The pair continues to show volatility, as the currency reacts to turbulence in the Japanese bond markets.  In economic news, Japanese Retail Sales continues to look weak posting a drop of 0.1%. However, the indicator did beat the estimate of -0.4%. Later on Thursday, Japan will release key inflation, consumer spending and manufacturing data. It’s a busy day in the US as well, with the release of three key events – Preliminary GDP, Unemployment Claims and Pending Home Sales.

The dollar has posted some gains against the yen on Thursday, courtesy of continuing volatility in the Japanese bond markets. The uncertainty in the bond markets has thrown a monkey wrench into the BOJ’s monetary easing program, which involves large purchases of Japanese bonds. The BOJ quickly sought to reassure the bond markets and announced that it would “fine-tune market operations” in order to ensure that long- and short-term interest rates remain stable.

The Japanese government and the BOJ have declared deflation as Public Enemy Number One, and the BOJ has embarked on an aggressive monetary easing program, as it seeks to double the monetary base within two years. However, inflation indicators continue to point to deflation, despite these efforts. Corporate Services Price Index, which measures corporate inflation, actually worsened, as the indicator fell from -0.2% to -0.4%. Critics of the government’s agenda say economic growth cannot be created by monetary policy alone, and deflation continues to hobble the Japanese economy. With more inflation indicators being released on Thursday, highlighted by Tokyo Core CPI, we’ll get a better idea if the government’s war on deflation is working. 

In the US, the Federal Reserve hasn’t made any changes to the current round of quantitative easing, which stands at $85 billion in asset purchases each month. Fed policymakers, including Fed Chair Bernanke, have not been shy about dropping clues that QE could be altered or even terminated in the next few months. The currency markets have reacted sharply to such talk, and much of the volatility we are seeing in the currency markets is a reflection of market uncertainty as to what the Fed plans to do. Talk of an end to QE has given a boost to the dollar, and we can expect the currency markets to continue to be very sensitive to further talk of tapering QE.

USD/JPY for Thursday, May 30, 2013

USD/JPY 101.47 H: 101.69 L: 100.47

USD/JPY Technical

USD/JPY continues to show volatility in Thursday trading. The pair has pushed higher, as it trades in the mid-101 range. The pair is facing resistance at 101.81. This line could see more pressure if the dollar shows any strength. This is followed by resistance at 102.60. On the downside, we continue to see support at 100.66. This is followed by a support level at the critical 100 level.

• Current range: 100.66 to 101.88

Further levels in both directions:

• Below: 100.66, 100, 99.57 and 99.48
• Above: 101.81, 102.60, 103.75, 104.94 and 105.87

OANDA’s Open Positions Ratio

USD/JPY ratio continues to point to movement towards long positions. This is reflected in the current movement of the pair, as the dollar has moved higher on Thursday. If the upward trend continues, we can expect the ratio to continue to be busy.

USD/JPY has moved higher, as we continue to see volatility from the pair. We  can expect more action from the pair during the day, as both the US and Japan release a string of important indicators.

USD/JPY Fundamentals

• 12:30 US Preliminary GDP. Estimate 2.5%.
• 12:30 US Unemployment Claims. Estimate 342K.
• 12:30 US Preliminary GDP Price Index. Estimate 1.2%.
• 14:00 US Pending Home Sales. Estimate 1.3%.
• 14:30 US Natural Gas Storage. Estimate 85B.
• 15:00 US Crude Oil Inventories. Estimate -0.8M.
• 23:15 Japanese Manufacturing PMI.
• 23:30 Japanese Household Spending. Estimate 3.1%.
• 23:30 Japanese Tokyo Core CPI. Estimate -0.2%.
• 23:30 Japanese National Core CPI. Estimate -0.4%.
• 23:30 Japanese Unemployment Rate. Estimate 4.1%.
• 23:50 Japanese Preliminary Industrial Production. Estimate 0.8%.

*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.