USD/JPY – Dollar Reverses Directions, Edges Higher

The US dollar has posted modest gains on Tuesday, recovering some of the losses sustained a day earlier. In the European session, USD/JPY is trading in the mid-1.04 range. In Japan, Monetary Base dropped in December and missed the estimate. On Tuesday, the average yield on 10-year bonds rose to 0.72% for December. In the US, ISM Non-Manufacturing PMI dropped to 53.0 points, well short of the estimate. As expected, the Senate confirmed Janet Yellen to head the Federal Reserve, starting in February. Today’s key event is US Trade Balance.

As expected, the US Senate confirmed Susan Yellen as chair of the Federal Reserve by a wide margin on Monday. Yellen becomes the first woman to head the powerful central bank. She has been a strong supporter of outgoing chair Bernard Bernanke, who lowered interest rates and implemented a QE program in order to boost a struggling US economy. The Fed has now started to trim the $85 billion QE scheme, with a $10 billion cut as of January. We could see another taper at the next Fed policy meeting in late January. Yellen takes over the helm on February 1, and will chair her first policy meeting in March.

We’ll get a look at some key employment numbers this week, including Unemployment Claims, Non-Farm Payrolls and the Unemployment Rate. Last week’s Unemployment Claims were almost identical to the previous week, coming in at 339 thousand. This was slightly above the estimate of 334 thousand.  The Non-Farm Payrolls release could impact on the next Fed decision, after 2013 ended with QE tapering. While it was small, the Fed did indeed change policy, and this could have a significant positive impact on the US dollar. Meanwhile, ISM Non-Manufacturing PMI disappointed with a reading of 53.0 points, well off the estimate of 54.6 points.

USD/JPY for Tuesday, January 7, 2014

USD/JPY January 7 at 12:45 GMT

USD/JPY 104.48 H: 104.62 L: 104.18

USD/JPY Technical

• USD/JPY has posted modest gains in Tuesday trading. The pair touched a high of 104.62 in the Asian session.
• 104.17 continues to provide support, but this is a weak line which could face pressure if the yen continues to move higher. This is followed by a strong support line at 103.30.
• On the upside, there is resistance at 105.70. This line has some breathing room as the pair trades at lower levels. This is followed by a resistance line at 106.85, which has remained intact since September 2008.
• Current range: 104.17 to 105.70

Further levels in both directions:

• Below: 104.17, 103.30, 102.53, 101.19 and 100.00
• Above: 105.70, 106.85, 107.73 and 108.77

OANDA’s Open Positions Ratio

USD/JPY ratio is pointing to gains in short positions in Tuesday trading. This is not consistent with what we are seeing from the pair, as the dollar has posted modest gains against the yen. Long positions have a majority in the USD/JPY ratio, indicating trader bias towards the dollar  continuing to move higher.

The dollar has reversed directions and has posted modest gains on Tuesday. With the US releasing Trade Balance in the day, we could see some further movement from the pair in the North American session, if the reading is not in line with market expectations.

USD/JPY Fundamentals

• 3:45 Japanese 10-year Bond Auction. Actual 0.72%.
• 13:30 US Trade Balance. Estimate -40.2B.
• 15:00 US IBD/TIPP Economic Optimism. Estimate 45.3 points.

*Key releases are highlighted in bold

*All release times are GMT

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