USD/JPY – Rangebound After Recent Gains

US markets are back in action on Tuesday, after enjoying a Monday off for the Labor Day holiday. USD/JPY posted sharp gains on Monday, but has since settled down. The pair is trading in the mid-99 range in Tuesday’s European session. In economic news, Japanese Monetary Base continues to increase and beat the estimate. Average Cash Earnings hit a six-month high, but still fell well short of the estimate. Today’s highlight is US ISM Manufacturing PMI.

The markets were unsteady last week in anticipation of an expected US military strike against Syria, after a chemical attack in the war-torn country killed hundreds. However, the attempt by the US to secure a coalition ran into trouble, and President Obama said on the weekend that he will seek Congressional approval before taking any action against Syria. With Congress in recess until September 9th, a military strike could be delayed until mid-September or even later.

Over in Japan, Average Cash Earnings posted a gain of 0.4%, its best showing since March. However, this was well off the forecast of a 0.8% gain. On Sunday, Capital Spending, which is released on a quarterly basis, was up sharply. The indicator climbed from -3.9% in Q1 to a flat 0.0% in Q2. The estimate stood at -2.0%. This marks the first time that the indicator has beaten the forecast since Q1 of 2012. The Japanese economy is showing signs of improvement, but business and consumer spending releases will have to point upwards if the economy is to recover from years of stagnation.

When will the Federal Reserve taper QE? The Federal Reserve has not given any hints, and recent statements from Fed policymakers underscore divisions regarding the timing of such a move. What is clear is that stronger US numbers will increase the likelihood of the Fed acting sooner rather than later. This means that US releases, especially employment data, will be under the market microscope and traders should be prepared for the Fed to begin tapering at any time, which will likely bolster the US dollar.

USD/JPY for Tuesday, September 3, 2013

USD/JPY September 3 at 12:10 GMT

USD/JPY 99.47 H: 99.55 L: 99.47

USD/JPY Technical

• USD/JPY is trading quietly in Tuesday trading. The pair touched a low of 99.17 but then edged higher.
• On the downside, the pair is testing support at 99.45. This is followed by support at 98.43.
• USD/JPY is facing resistance at the round number of 100. This line has remained firm since late July. 100.85 is a stronger line of resistance.
• Current range: 99.45 to 100

Further levels in both directions:

• Below: 99.45, 98.43, 97.83, 97.18, 96.20 and 95.60
• Above: 100.00, 100.85, 101.66 and 102.53

OANDA’s Open Positions Ratio

USD/JPY ratio is pointing to movement towards long positions in Tuesday trading. This is reflected in the current movement of USD/JPY, as the dollar has posted very small gains in lackluster trading. The ratio continues to have a strong majority of long positions, indicative of strong trader bias towards the dollar continuing to push to higher ground.

USD/JPY finds itself in the mid-99 range, within striking distance of the critical 100 line. Will the pair continue to move upwards? With the US releasing its first major event this week, ISM Manufacturing PMI, we could see the pair break out if the reading is not in line with market expectations.

USD/JPY Fundamentals

• 1:30 Japanese Average Cash Earnings. Estimate 0.4%. Actual 0.8%.
• 3:45 Japanese 10-year Bond Auction. Actual 0.77%.
• 13:00 US Final Manufacturing PMI. Estimate 53.9 points.
• 14:00 US ISM Manufacturing PMI. Estimate 54.2 points.
• 14:00 US Construction Spending. Estimate 0.3%.
• 14:00 US IBD/TIPP Economic Optimism. Estimate 46.2 points.
• 14:00 US ISM Manufacturing Prices. Estimate 51.6 points.

*Key releases are highlighted in bold

*All release times are GMT

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