USD/JPY – Yen Moves Below 100 Level

USD/JPY continues to flirt with the 100 level. The pair has crossed below this crucial barrier and is trading around the 99.70 level is Thursday’s European session. The pair has been trading close to the 100 line all week, unable to maintain momentum in either direction. In economic news on Wednesday, US Home Sales sparkled, climbing to its highest level in five years. In Japan, the CSPI inflation indicator could not keep up with expectations and fell below the estimate. On Thursday, the markets will get another look at Japanese inflation, with the release of Tokyo Core CPI and National Core CPI. In the US, there are two key releases – Core Durable Goods Orders and Unemployment Claims.

This week’s US housing releases has analysts scratching their heads, as the releases pointed in opposite directions. Earlier in the week, Existing Home Sales dropped from 5.18 million to 5.08 million, way off the forecast of 5.27 million. However, New Home Sales soared on Wednesday, jumping from 476 thousand to 496 thousand, well above the estimate of 482 thousand. This was the key housing indicator’s best performance in five years. With mixed housing releases this week, the markets will have to wait for the August releases to get a better handle on the direction of the US housing industry.

In Japan, Corporate Services Price Index rose slightly, from 0.3% to 0.4%. This is the sharpest gain we’ve seen this year, but the figure fell short of the estimate of 0.7%. The markets will be hoping that the Tokyo Core CPI and National Core CPI can meet or  beat their estimates on Thursday. Prime Minister Shinzo Abe, who won an important parliamentary election earlier in the week, has made stamping out deflation a cornerstone of his aggressive economic platform, which adds to the importance of inflation releases. Deflation has hobbled the Japanese economy for the past 15 years, and under Abenomics, the economy has improved and started showing signs of inflation.

The question of when the Fed will pull the trigger on QE tapering continues to preoccupy the markets. Despite the zigzagging we’ve seen on this issue from the Fed, there is a strong likelihood that this will take place before the end of 2013, barring a major downturn by the US economy. There is speculation that the Fed could take action in September. Appearing on Capitol Hill last week, Fed chair Bernard Bernanke was careful not to get pinned down with any specific deadlines, and instead said that stronger growth and lower unemployment were the key factors to any action over QE. The problem with this approach is the markets remain in the dark, and every strong US release fuels expectation about QE tapering, while a weak release does the opposite. This of course, contributes to market instability, as we’ve seen in recent months with the US dollar. The G20 seemed to have this issue in mind when it issued a statement that member countries had agreed that future monetary policy moves would be “carefully calibrated and clearly communicated”. Whether the Fed will suddenly show its cards is doubtful, especially in light of Bernanke’s vague and rather dull performance in front of Congress last week.

USD/JPY for Thursday, July 25, 2013

USD/JPY 99.78 H: 100.42 L: 99.62

USD/JPY Technical

USD/JPY continues to stay close to the 100 line in Thursday trading. In the Asian session, the pair touched a high of 100.45. It then moved lower, dropping below 100 in the European session. This significant barrier is currently providing weak resistance. 100.85 is a stronger resistance line.

On the downside, 99.45 is providing support. This is not a strong line and could face pressure if the yen gains more ground. There is a stronger support level at 98.43.

• Current range: 99.45 to 100.00

Further levels in both directions:

• Below: 99.45, 98.43, 97.83, 97.18 and 0.9620
• Above: 100.00, 100.85, 101.66, 102.52 and 103.22

OANDA’s Open Positions Ratio

USD/JPY ratio has shifted directions, and is pointing to movement towards long positions on Thursday. This is not reflected in the current movement of the pair, as the yen has posted gains against the dollar. Long positions continue to enjoy a sizeable majority of open positions, indicating that trader sentiment is biased in favor of the pair reversing direction and moving higher.

USD/JPY Fundamentals

• 12:30 US Core Durable Goods Orders. Estimate 0.5%.
• 12:30 US Unemployment Claims. Estimate 339K.
• 12:30 US Durable Goods Orders. Estimate 1.1%.
• 12:45 US Treasury Secretary Jack Lew Speaks.
• 14:30 US Natural Gas Storage. Estimate 44B.
• 23:30 Japanese Tokyo Core CPI. Estimate 0.3%.
• 23:30 Japanese National Core CPI. Estimate 0.3%.

*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.