USD/JPY – Yen Climbs as Japanese Inflation Numbers Improve

The yen is on a late-week roll, as it continues to post gains against the US dollar. In Friday’s European session, USD/JPY is trading in the mid-98 range, as the yen has managed to pull away from the 100 level. The yen has now climbed close to 200 points since early Thursday. On Thursday, Japanese inflation data improved and met expectations, bolstering the yen. The Japanese currency also took advantage of weak US employment and manufacturing releases, which fell below their estimates.

In Japan, inflation indicators continue to improve. Tokyo Core CPI improved rose from 0.2% to 0.3%, matching the forecast. Not to be outdone, National Core CPI jumped from 0.0% to 0.4%, also matching the estimate. Earlier this week, Corporate Services Price Index posted a gain of 0.4%. Although this fell short of the estimate, it did mark the indicator’s best reading in 2013. Prime Minister Shinzo Abe, who won an important parliamentary election earlier in the week, has made stamping out deflation a cornerstone of his aggressive economic platform, which gives added importance to the country’s inflation releases. Deflation has hobbled the Japanese economy for the past 15 years, so these positive figures show that the Abenomics shock therapy is producing results.

Over in the US, Thursday’s key releases did not impress the markets. Unemployment Claims was a disappointment, rising from 334 thousand to 343 thousand. The estimate stood at 339 thousand. Core Durable Goods Orders slid badly, dropping from 0.7% to a flat 0.0%. The markets were expecting a gain for the third consecutive month, with an estimate of 0.5%. There was some good news from Durable Goods Orders, a second tier release. The manufacturing indicator climbed from 3.6% to 4.2%, blowing past the estimate of 1.1%. The US economy may be pointed in the right direction, but the employment and core durable goods releases underscore that the economy still has plenty of room to improve.

This week’s US housing releases has analysts scratching their heads, as two key releases pointed in opposite directions. Early in the week, Existing Home Sales dropped from 5.18 million to 5.08 million, way off the forecast of 5.27 million. However, New Home Sales soared on Wednesday, jumping from 476 thousand to 496 thousand, well above the estimate of 482 thousand. This was the key housing indicator’s best performance in five years. With mixed housing releases this week, the markets will have to wait for the August releases to get a better handle on the direction of the US housing industry.

USD/JPY for Friday, July 26, 2013

USD/JPY 98.65 H: 99.36 L: 98.49

USD/JPY Technical

For the first time in over a week, USD/JPY has managed to pull away from the shadow of the 100 level. The pair broke below the 99 line in the Asian session and has edged lower in the European session. USD/JPY is receiving support at 98.43. This line is weak, and could be tested if the yen continues its upward momentum. 97.83 is a strong support level. This line has held firm since late June.

On the upside, 99.45 is providing resistance. This line has strengthened as the pair trades at lower levels. The significant line of 100 is the next resistance line.

• Current range: 98.43 to 99.45

Further levels in both directions:

• Below: 98.43, 97.83, 97.18 and 0.9620
• Above: 99.45, 100.00, 100.85, 101.66, 102.52 and 103.22

OANDA’s Open Positions Ratio

USD/JPY ratio continues the shift we saw on Thursday, as it points towards long positions in Friday trading. This is not reflected in the current movement of the pair, as the yen continues to post gains against the dollar. Long positions continue to enjoy a sizeable majority of open positions, indicating that trader sentiment is biased in favor of a correction in which the US dollar will move higher.

The yen continues to roll, and has posted sharp gains against the dollar. Will the rally continue? With no major US releases due out on Friday, we could see USD/JPY settle down and trade in the mid-98 range during the day.

USD/JPY Fundamentals

• 23:30 Tokyo Core CPI. Estimate 0.3%. Actual 0.3%.
• 23:30 Japanese National Core CPI. Estimate 0.3%. Actual 0.4%.
• 13:55 US Revised UoM Consumer Sentiment. Estimate 84.0 points.
• 13:55 US Revised UoM Inflation Expectations.

*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.