USD/JPY – Rangebound Trading Continues

USD/JPY is steady in Tuesday trading, as the pair trades in the low-99 range in the European session. In Japan, there are no releases scheduled on Tuesday. Over in the US, it is another quiet day, with two minor releases, as well as a speech from Treasury Secretary Jack Lew.

USD/JPY continues to trade at high levels, and the pair remains within striking distance of the 100 level. At its recent policy meeting, the BoJ noted that it could take more than two years to reach its 2% inflation target. This possibility has been underscored by recent Japanese inflation releases, which continue to point to deflation in the economy, despite the best efforts of the BOJ to create some inflation. This has fuelled expectations that the BOJ will resort to further easing measures later in the year, as the Prime Minister Abe and BOJ Governor Kuroda have stated very clearly that they will do whatever is needed to stamp out deflation, which has hobbled the Japanese economy for years. So we could see the yen continue to lose ground against the US dollar.

The markets continue to pay close attention to the ECB. After the ECB took action and reduced interest rates, the markets had a chance to hear ECB head Mario Draghi, who spoke in Rome on Monday. Draghi said that last week’s cut was taken due to the continuing slowdown in the Eurozone, and urged Eurozone countries to take the necessary steps to get their fiscal houses in order. Draghi repeated that the ECB was open to further rate cuts, as well as lowering its deposit rates below zero. When he mentioned the latter point last week, the euro took a dive, but this time, the markets did not react. However, not all policymakers favor further reductions. Yves Mersch, an ECB board member, stated that interest rate cuts have limits to their effectiveness.

Back in the US, last week’s employment numbers were welcome news, as the US has been churning out mostly weak key releases. Unemployment Claims came in below expectations for the second straight week. The key indicator dropped from 339 thousand to 324 thousand, blowing past the estimate of 346 thousand. On Friday, Non-Farm Payrolls climbed to 165 thousand. This easily beat the estimate of 146 thousand. As well, the Unemployment Rate fell from 7.6% to 7.5%. Improving employment numbers are critical for economic growth, and the markets are hoping that the good news continues.

USD/JPY for Tuesday, May 7, 2013

USD/JPY 99.34 H: 99.38 L: 98.83

USD/JPY Technical

USD/JPY is showing little change in Tuesday trading, and the proximate resistance and support lines remain in place (R1 and S1 above). On the downside, the pair continues to receive support at 98.45. The next support level is at 97.24. The pair faces resistance at 99.57. This continues to be a weak line, and could be tested if the pair moves higher. This is followed by resistance at the all-important 100 line.

• Current range: 98.45 to 99.57

Further levels in both directions:

• Below: 98.45, 97.24, 96.03 and 95.27
• Above: 99.57, 100, 100.54 and 101.81

OANDA’s Open Positions Ratio

USD/JPY ratio  is not showing any movement in the Tuesday session. This is reflected in what we are seeing from the pair, which is trading in a narrow range. Traders should keep a close eye on the ratio, as renewed movement could be an early indication that USD/JPY will break out.

After showing some improvement last week, the yen has run out of steam, and the pair again finds itself within striking distance of the 100 level. With  no major releases on the schedule, we could see the pair continue to trade quietly near the 99 level.

USD/JPY Fundamentals

• 14:00 US IBD/TIPP Economic Optimism. Exp. 47.1 points.
• 19:00 US Consumer Credit. Exp. 16.2B.
• 20:00 US Treasury Secretary Jack Lew Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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