USD/JPY – Yen Losing Ground Over Syria Tensions

USD/JPY continues to move higher, as markets jitters continue regarding a likely military strike by the US against Syria. The pair has been marching upwards since Wednesday and is trading in the low-98 range in the European session. In economic news, US Pending Home Sales posted a second straight decline, while Japanese Retail Sales also dropped and missed the estimate. On Thursday, there are a host of releases out of Japan later on, including Tokyo CPI and Household Spending. The US will release two key indicators – Preliminary GDP and Unemployment Claims.

The markets are nervous as investors brace for a likely military strike by the US against Syria. The US has vowed to respond after a chemical attack in the war-torn country, apparently by the Syrian regime, killed hundreds of civilians. There are fears that a US attack could elicit a response from Syria or even Iran, so traders should expect to see volatility in the markets. There has been a report that the US may choose to strike on the weekend, which would give the markets time to adjust before opening on Monday. Meanwhile, the Japanese yen has shed about over 100 points since early Wednesday, as nervous investors dump their yen and head to the safe-haven US dollar.

On Wednesday, there was another poor release out of the US, as Pending Home Sales looked weak. The key housing indicator posted its second straight decline, dropping 1.3% in August. This was well off the market estimate of 0.2%. US manufacturing indicators started off the week with sharp declines, although consumer confidence looked sharp. The dollar has remained strong despite the mixed data, thanks to the crisis over Syria as well as market speculation over QE tapering.

Over in Japan, the yen got no relief from a weak Retail Sales release. The important consumer indicator posted a decline of 0.3%. The markets had expected a reading of 0.0%. We’ll get good look at Japanese inflation indicators on Thursday, including the all-important Tokyo Core CPI. The government has made the elimination of deflation a top economic priority, and Japanese inflation numbers have shown some improvement recently.

The Federal Reserve has not given many clues about when it might taper QE, but the recent Jackson Hole summit provided a glimpse of the divisions in the Fed as to when it might act. Fed chair Bernard Bernanke was a no-show at the summit, giving other policymakers an opportunity to express their views on QE. Dennis Lockhart, head of the Atlanta Fed, said that tapering could start in September, but only if US data justified such a move. There was a more hawkish statement from James Bullard, head of the St. Louis Fed. Bullard said that there was no need for the Fed to rush into QE tapering. Bullard will make two appearances on Thursday, so we could see some reaction from the markets to his remarks. Meanwhile, the uncertainty over QE tapering has boosted the US dollar, raised the yields on US treasury bonds and led nervous investors to pull billions of dollars out of emerging markets. With September just around the corner, we could see strong volatility in the markets as speculation over QE heats up.

USD/JPY for Thursday, August 29, 2013

USD/JPY August 29 at 12:50 GMT

USD/JPY 98.36 H: 98.51 L: 97.46

USD/JPY Technical

• USD/JPY continues to post gains on Thursday. The pair pushed above the 98 line in Asian trading and continues to move higher.
• The pair is testing resistance at 98.43. This line could break if the yen continues to weaken. There is stronger resistance at 99.45.
• On the downside, USD/JPY is receiving support at 97.83. This is followed by strong support at 97.18.
• Current range: 97.83 to 98.43

Further levels in both directions:

• Below: 97.83, 97.18, 96.20, 95.60 and 94.29
• Above: 98.43, 99.45, 100.00, 100.85 and 101.66

OANDA’s Open Positions Ratio

USD/JPY ratio has reversed directions on Thursday and is pointing to movement towards short positions. This is not reflected in the current movement of USD/JPY, as the dollar continues to post gains at the expense of the yen. A large majority of the open positions in the ratio are long, indicative of strong trader bias towards the dollar continuing to push to higher ground.

USD/JPY continues to move higher, and continuing tension regarding Syria could boost the dollar. We could see further volatility from the pair in the North American session, with the US releasing key GDP and employment data later in the day.

USD/JPY Fundamentals

• 12:30 US Preliminary GDP. Estimate 2.2%.
• 12:30 US Unemployment Claims. Estimate 330K.
• 12:30 US Preliminary GDP Price Index. Estimate 0.7%.
• 12:50 US FOMC Member James Bullard Speaks.
• 14:30 US Natural Gas Storage. Estimate 65B.
• 23:15 Japanese Manufacturing PMI.
• 23:30 Japanese Household Spending. Estimate 0.4%.
• 23:30 Japanese Tokyo Core CPI. Estimate 0.4%.
• 23:30 Japanese National Core CPI. Estimate 0.6%.
• 23:30 Japanese Unemployment Rate. Estimate 3.9%.
• 23:45 US FOMC Member James Bullard Speaks.
• 23:50 Japanese Preliminary Industrial Production. Estimate 3.9%.

*Key releases are highlighted in bold

*All release times are GMT

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