USD/JPY – Dollar Climbs Close to 99 After Fed Statement

After a week of sustaining losses at the hands of the Japanese yen, the US dollar is flexing some muscle. In European trade on Thursday, the pair has added close to 100 points, and is trading in the high-98 range. The dollar got some help as the Federal Reserve stated it would continue its current levels of QE and expressed cautious optimism about the US economy. On Thursday, there are two key releases out of the US – Unemployment Claims and ISM Manufacturing PMI. In Japan, the yields on 10-year bonds were down slightly and Monetary Base will be released later on Thursday.

Anyone expecting dramatic news from the Federal Reserve on Wednesday came home empty-handed. As expected, the Fed said it would continue with the present level of QE, which involves $85 billion in asset purchases each month, and gave no indication about when it might scale down QE. There has been talk that the Fed could taper QE as early as September, and the speculation and uncertainty will likely cause volatility in the markets so long as the Fed doesn’t show its cards. The Fed gave a cautious thumbs-up to current economic activity, noting that the economy was growing at a “modest” pace.

Recent Japanese data has been lukewarm, but the yen still posted gains for much of this week. On Wednesday, Japanese Housing Starts climbed from 14.5% to 15.3%, its best performance since October 2012. The markets had expected more, with an estimate of 15.9%. Average Cash Earnings edged up to 0.1%, shy of the estimate of 0.2%. Perhaps the markets are “cutting some slack” and focusing on the fact that some Japanese indicators, although they are falling short of their estimates, are nevertheless posting strong gains, indicative of an improving Japanese economy.

One of the cornerstones of the Japanese government’s economic policy, popularly referred to as Abenomics, has been a battle to eliminate deflation, which has hobbled the economy for some 15 years. It has taken quite a bit of time, but inflation indicators are finally pointing upwards. Last week, Tokyo Core CPI improved rose from 0.2% to 0.3%, matching the forecast. Not to be outdone, National Core CPI jumped from 0.0% to 0.4%, also matching the estimate. Another inflation release, Corporate Services Price Index, posted a gain of 0.4%. Although this fell short of the estimate, it did mark the indicator’s best reading in 2013. Stronger inflation would indicate increased spending and greater economic activity, which could bolster the weak Japanese yen.

USD/JPY for Thursday, August 1, 2013

USD/JPY August 1 at 10:55 GMT

USD/JPY 98.75 H: 98.86 L: 97.65

USD/JPY Technical

USD/JPY has reversed directions on Thursday, as the dollar posts strong gains. The pair crossed above the 98 line in the Asian session and continues to push upwards. The pair dropped below the 98 line late in Asian trade, and the downward tend continues. USD/JPY is receiving support at 98.43. This is a weak line and could face pressure if the yen can reverse direction. 97.83 is providing stronger support.

On the upside, USD/JPY faces resistance at 99.45. Given the strong upward momentum we are seeing from the pair, this line cannot be considered safe. This is followed by resistance at the critical line of 100.00.

• Current range: 98.43 to 99.45

Further levels in both directions:

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

OANDA’s Open Positions Ratio

USD/JPY ratio is showing little change on Thursday, continuing a trend we have seen throughout the week. This is not reflected in what we are currently seeing from the pair, as the dollar has posted some healthy gains against the yen. Long positions continue to enjoy a sizeable majority of open positions, indicating that trader sentiment is biased in favor of the US dollar continuing to move higher.

USD/JPY has reversed direction as the dollar moves higher. The pair’s movement could continue as the US will release key employment and manufacturing data later today.

USD/JPY Fundamentals

•  3:45 Japanese 10-year Bond Auction. Actual 0.80%.
• 12:30 US Unemployment Claims. Estimate 346K.
• 13:00 US Final Manufacturing PMI. Estimate 52.1 points.
• 14:00 US ISM Manufacturing PMI. Estimate 52.1 points.
• 14:00 US Construction Spending. Estimate 0.4%.
• 14:00 US ISM Manufacturing Prices. Estimate 53.0 points.
• 14:30 US Natural Gas Storage. Estimate 55B.
• All Day: US Total Vehicle Sales. Estimate 15.8M.
• 23:50 Japanese Monetary Base. Estimate 43.2%.

*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.