USD/JPY – Modest Losses Ahead of Fed Announcement

The Japanese yen has posted slight gains in Wednesday trading. In the European session, USD/JPY is trading in the high-102 range. In economic news, today’s highlight is the Federal Reserve Monetary Policy Statement, as the Fed decides whether to implement another dose of QE tapering. Japanese Retail Sales will be released later on Wednesday. The markets are expecting another strong reading from the key consumer spending indicator.

Will we see another taper from the US Federal Reserve? The markets are waiting for the Fed’s policy statement on Wednesday, with most analysts predicting that the Fed will indeed go ahead and reduce QE for a second straight month. Such a move would be an important vote of confidence in the US economy, and could give a boost to the US dollar against its major rivals. This policy meeting will be chairman Bernard Bernanke’s last hurrah, as Janet Yellen takes over the reins of the Fed on February 1.

The US housing sector continues to post worrying numbers. New Home Sales dropped sharply to 414 thousand, down from 464 thousand a month earlier. This was nowhere near the estimate of 457 thousand. This follows a disappointing Existing Home Sales release last week. The key indicator dropped to 4.87 million, down from 4.90 million a month earlier and shy of the estimate of the 4.94 million. This was the indicator’s fourth straight drop. The markets will be hoping for better news from Pending Home Sales on Thursday. A third straight housing reading below the estimate could weigh on the dollar.

There were no surprises in the minutes of the BOJ’s most recent policy meeting, which were released on Monday. The Bank said that it will continue to expand the monetary base by 60-70 trillion yen annually and that it will continue its monetary easing until the inflation target of 2.0% is reached. The Bank noted that the Japanese economy continues to recover at a moderate pace and that inflation has picked up. This was underscored by the Corporate Services Price Index, which continues to climb, posting a gain of 1.3%, above the estimate of 1.1%. However, inflation still has a long way to go to meet the BOJ’s target, with inflation for 2013 falling below 1.0%.

USD/JPY for Wednesday, January 29, 2014

USD/JPY January 29 at 12:50 GMT

USD/JPY 102.74 H: 103.36 L: 102.68

USD/JPY Technical

• USD/JPY has reversed directions and posted gains in Wednesday trading. The pair was steady for most of the Asian session and dropped below the 103 line earlier in the European session.
• 103.30 is the next resistance line. This is followed by resistance at 104.17.
• On the downside, 102.53 is under strong pressure as the yen has improved. The next support level is 101.19, which has remained intact since late November.
• Current range: 102.53 to 103.30

Further levels in both directions:

• Below: 102.53, 101.19, 100.00 and 99.57
• Above: 103.30, 104.17, 105.70, 106.85 and 107.73

OANDA’s Open Positions Ratio

USD/JPY ratio is pointing to gains in short positions, continuing the trend we saw a day earlier. This is consistent with what we are seeing from the pair, as the yen has posted modest gains. Long positions continue to comprise a solid majority in the USD/JPY ratio, indicating trader bias towards the dollar reversing direction and moving to higher ground.

The yen has posted slight gains in Wednesday trading. We could see some activity from the pair in the North American session, as the Federal Reserve makes an announcement as to whether it will introduce another QE taper.

USD/JPY Fundamentals

• 23:50 Japanese Retail Sales. Estimate 3.9%.
• 15:30 US Crude Oil Inventories. Estimate 2.2M.
• 19:00 US FOMC Statement.
• 19:00 US Federal Funds Rate. Estimate <0.25%.

*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.