USD/JPY – Dollar Continues to Pummel Yen

The Japanese yen continues to tumble, as USD/JPY pushes higher. The pair is currently testing the 91 level. The markets were not impressed by Friday’s Japanese inflation data, which continue to point to a deflationary trend. In the US, Thursday’s employment data looked excellent. Friday’s lone release is US New Home Sales. There are no Japanese releases on Friday.

The US dollar continued its winning ways against the Japanese yen, as CPI data released late on Thursday pointed to continued deflation. Tokyo Core CPI declined by 0.5% last month, while National Core CPI posted a 0.2% drop. Although these figures matched the estimates, market sentiment was negative, as the Japanese economy continues to grapple with deflation despite the aggressive measures taken by the Japanese government and the Bank of Japan. The BOJ doubled its inflation target to 2.0% earlier week as part of a stimulus package, but clearly, it will take more time, and perhaps additional monetary measures, before the deflationary trend can be reversed. There has been disappointment that the BOJ’s open-ended purchase of assets will not begin before 2014, and if economic indicators continue to look sluggish, these purchases may have to be moved up to an earlier date.

 US employment numbers looked sharp, as Unemployment Claims smashed the market estimate for the second straight week. New claims dropped slightly to 330 thousand, easily beating the forecast of 359 thousand. The strong numbers are raising hopes that the US economy is gaining steam, but the markets will want to see these positive numbers reflected in an improvement in the high US unemployment rate, which currently stands at 7.8%. There was some good news from the manufacturing sector, which continues to be a sore spot in the economy. Manufacturing PMI jumped to 56.1 points, well above the estimate of 53.2 points. The reading was particularly good news after two dismal manufacturing releases recently.

The extent of the US recovery remains a question mark, as economic data continues to point in all directions. The employment situation appears to be improving, as the Unemployment Claims indicator has looked outstanding for the past two weeks. Retail Sales also has looked sharp. On the other hand, we continue to see sluggish manufacturing and consumer sentiment data. As well, the most recent housing numbers fell below the estimate. With the US economic indicators sending mixed signals about the extent of the recovery, the uncertainty is likely to be reflected in the currency markets. The US Federal Reserve has not been in the headlines lately, but is busy at work, as it increased its purchases of securities in January from $40 billion to $85 billion. This has pushed  the Fed’s balance sheet to a record $3 trillion. Despite these measures, the US recovery remains slow, and unemployment is still high at 7.8%. The markets will be paying close attention to the Fed’s take on the economy, when it meets for a policy meeting next week.

USD/JPY for Friday, January 25, 2013

USD/JPY January 25 at 11:45 GMT

USD/JPY 90.90 H: 91.00 L: 90.29

USD/JPY continues to push to ever-higher levels, and is testing the 91 line. There is weak support at 90.91, and it looks like this line will see more action before the end of the week. This is followed by support at 90.23, which has strengthened as the pair trades close to the 91 line. On the upside, 91.30 is providing resistance, but cannt be considered strong, given the pair’s volatility. The next line of resistance is at 91.94, protecting the round number of 92.

• Current range: 90.91 to 91.30

Further levels in both directions:

• Below: 90.91, 90.23, 89.85, 89.31, 88.55 and  87.95.
• Above: 91.30, 91.94, 93.18, 93.52 and 94.15.

OANDA’s Open Position Ratios

USD/JPY continues to fluctuate, and we are currrently seeing movement in the direction of short positions. This is reflected in the currency pair, as the yen continues to slide against the dollar. Given the strong volatility in the pair, we can expect the ratio to be active as well.

The yen continues to take a beating, and has already tested the 91 line in Friday trading. Will the yen’s downward plunge continue? The markets reacted sharply to disappointing inflation numbers out of Japan, and with the current momentum, we can expect more volatility as USD/JPY wraps up a very busy week.

USD/JPY Fundamentals

 15:00 US Home Sales. Estimate 387K.

*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.