USD/JPY – Volatile as Markets React To Syria Fears

USD/JPY continues to show volatility this week. The pair has crossed above the 97 line in Wednesday trading, after posting sharp losses on Tuesday. The markets are nervous about developments in the Middle East, as a US strike on Syria seems imminent. In economic news, the US finally broke out with some strong releases as consumer climate and manufacturing releases looked very sharp. In Japan, Retail Sales will be released later on Wednesday. The markets are braced for a much weaker reading than last month, which saw the indicator jump 1.6%. Today’s highlight is US Pending Home Sales.

The Japanese yen posted sharp gains against the dollar, as USD/JPY dropped about 150 points and dipped below the 97 line. The pair has reversed directions on Wednesday and crossed back into 97 territory. The markets are nervous as the US appears ready to strike at Syria after a chemical attack in the strife-torn country killed hundreds of civilians. There are fears that a US attack could ignite the region, so traders should be prepared for some volatility in the markets this week. 

After some weak key releases, the US rebounded nicely on Tuesday, with excellent consumer confidence and manufacturing numbers. CB Consumer Confidence rose to 81.5 points in August, its highest level since January 2008. The estimate stood at 79.6. After some weak manufacturing data earlier in the week, Richmond Manufacturing Index sparkled, soaring from -1 to +14 points. This crushed the estimate of -7 points and was the indicator’s best showing since April 2012. If US data continues to look good, we could see the dollar post gains against the yen.

The Federal Reserve has kept mum about when it might taper QE, but the recent Jackson Hole summit provided a glimpse of the divisions in the Fed as to when it might act. Fed chair Bernard Bernanke was a no-show at the summit, giving other policymakers an opportunity to express their views on QE. Dennis Lockhart, head of the Atlanta Fed, said that tapering could start in September, but only if US data justified such a move. There was a more hawkish statement from James Bullard, head of the St. Louis Fed. Bullard said that there was no need for the Fed to rush into QE tapering. The uncertainty over QE tapering has buoyed the US dollar, raised the yields on US treasury bonds and led nervous investors to pull billions of dollars out of emerging markets. With September just around the corner, we could see strong volatility in the markets as speculation over QE heats up.

In Japan, the week started well as Corporate Services Price Index posted its second straight gain, rising 0.4%. This matched the market forecast. Although not a major release, the CSPI was good news, as one of the cornerstones of the Abe government’s economic policy has been to stamp out deflation, which has hobbled the Japanese economy for years. The economy seems to responding to the government’s aggressive economic platform and there are signs of increased economic activity as many releases point upwards. At the same time, the country huge debt continues to weigh on the economy. Japan is expected to spend a record $257 billion to service its debt in 2014, and this will require the government to implement unpopular tax hikes.

USD/JPY for Wednesday, August 28, 2013

USD/JPY August 28 at 11:30 GMT

USD/JPY 97.44 H: 98.59 L: 96.88

USD/JPY Technical

• USD/JPY has posted gains on Wednesday. The pair tested the 97 level in Asian trading and pushed into 97 territory in the European session.
• USD/JPY continues to face resistance at 97.83. This is not a strong line, and could be tested if the dollar continues to push higher. This is followed by resistance at 98.43.
• On the downside, USD/JPY is receiving weak support at 97.18. This is followed by support at 96.20. This line has held firm since mid-August.
• Current range: 97.18 to 97.83

Further levels in both directions:

• Below: 97.18, 96.20, 95.60 and 94.29
• Above: 97.83, 98.43, 99.45, 100.00, 100.85 and 101.66

OANDA’s Open Positions Ratio

USD/JPY ratio is pointing to movement in the direction of long positions on Wednesday. This is reflected in the current movement of USD/JPY, as the dollar has moved higher at the expense of the yen. A large majority of the open positions in the ratio are long, indicative of strong trader bias towards the dollar continuing to push to higher ground.

We’re seeing some volatility from USD/JPY, as the dollar tries to recover from Tuesday’s sharp losses. The US releases key housing data later in the day, which could affect the movement of USD/JPY if the reading is not in line with market expectations.

USD/JPY Fundamentals

• 14:00 US Pending Home Sales. Estimate 0.2%.
• 14:30 US Crude Oil Inventories. Estimate 0.5M.
• 23:50 Japanese Retail Sales. Estimate 0.0%.

*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.