USD/JPY – Dollar Slips Below 102 in Thin Holiday Trade

USD/JPY has started off the week with gains, as the pair has dipped below the 102 line in Monday’s European session. This marks a two-week high for the yen, which has taken advantage of broad dollar weakness against the major currencies. On the release front, Japanese markets are closed for a holiday. In the US, today’s highlight is ISM Non-Manufacturing PMI. The markets are expecting the index to improve in the April reading.

US employment releases looked excellent on Friday. Nonfarm Payrolls jumped to 288 thousand, easily beating the estimate of 216 thousand. Federal Reserve policymakers were clearly pleased with the news, and FOMC member Richard Fisher said that the US economy is “moving in the right direction”. The Unemployment Rate kept pace, dropping to 6.3%, its lowest level since September 2008. At the same time, the participation rate in the labor force dropped, so slack remains in the US job market, despite the strong releases in April.

On Thursday, Japanese Household Spending shocked the markets with a surge of 7.2% in April, crushing the estimate of 1.7%. Analysts were concerned that this important consumer spending indicator might take a hit from the steep hike in the sales tax which kicked in on April 1. The superb gain indicates that the Japanese consumer continues to spend and reinforced last week’s statement from the Bank of Japan that the economy is not showing ill effects from the rise in the sales tax. The policy statement also stated that the current monetary base would continue and said that it expects to meet its inflation target in 2015. The BOJ’s target for inflation is 2% and inflation indicators have been steadily improving.

As expected, the Federal Reserve trimmed its QE program by $10 billion on Wednesday. This marks the fourth cut since December, reducing the asset purchase scheme to $45 billion/month. The tapers are no longer creating headlines as they did just a few months ago, and the dollar didn’t get any lift against its major rivals. What did catch the markets’ attention was the Fed statement that interest rates would remain low for a “considerable time” after QE ends. The markets expect QE to wind up before the end of the year, so we could see a rate hike in early 2015, depending of course, on the strength of the US economy and the job market.

USD/JPY for Monday, May 5, 2014

USD/JPY May 5 at 12:25 GMT

USD/JPY 101.94 H: 102.22 L: 101.86

USD/JPY Technical

• USD/JPY has lost ground in Monday trade. The pair has been flirting with the 102 line since the Asian session.
• 102.53 is providing resistance. 103.07 is a stronger resistance line.
• 101.19 continues to provide strong support.
• Current range: 101.19 to 102.53

Further levels in both directions:

• Below: 101.19, 100.00, 99.57 and 98.97.
• Above: 102.53, 103.07, 104.17, 105.70 and 106.85.

OANDA’s Open Positions Ratio

USD/JPY ratio is pointing to gains in long positions in Monday trade. This is not consistent with the pair’s movement, as the yen ahs posted slight gains. The ratio is made up of a substantial majority of long positions, indicating trader bias towards the dollar posting further gains.

The pair has dropped into 101 territory on Monday and remains steady in the European session.

USD/JPY Fundamentals

• 13:45 US Final Services PMI. Estimate 54.2 points.
• 14:00 US ISM Non-Manufacturing PMI. Estimate 54.3 points.
• Tentative – US Loan Officer Survey.

*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.