USD/JPY – Yen Continues to Trade Above 88 Level

USD/JPY continues to trade at very high levels, and is currently trading above the 88 line. In Japan, the Leading Indicators Index was a disappointment, as it failed to meet the market estimate. There are a host of releases out of the US, with the major release being the weekly Unemployment Claims.

The Japanese economy had a sluggish performance in 2012, but analysts expect some improvement, as Prime Minister Shinzo Abe embarks on an ambitious economic platform intended to stimulate economic growth. The new Japanese government, which won the elections in December, is determined to stamp out deflation, which has been a long-term problem for the sluggish Japanese economy. The government is planning increased fiscal spending and aggressive monetary easing, and wants to see a much weaker yen. With the Bank of Japan wielding significant power, it continues to facing strong pressure from the government to implement aggressive monetary easing measures. The results have indeed been tangible, as the Japanese currency has declined about 8 per cent against the US dollar since mid-November. However, there is unease in the US and other countries at the sharp drop in the value of the yen. The US has stated that it would prefer to see the Japanese government take steps that will directly facilitate growth in the economy, rather than use the “hammer” of monetary easing to manipulate the value of the yen.

The fiscal cliff crisis seemed to have concluded successfully last week, as Congress managed to craft together a compromise which all sides could agree to, albeit with some reluctance. However, the story is by no means over, and this recent battle, which grabbed the news headlines for several weeks, appears to have just been the first round. More battles are imminent, as the hard-fought fiscal cliff deal left two critical issues – the debt ceiling and spending cuts, for another day. Democrats and Republicans are likely to tangle in Congress at the end of February, as the country reaches the $16.4 trillion debt ceiling. If the debt ceiling is not raised (yet again), the result would be the default of the US government, which undoubtedly would cause chaos in the markets. Republicans have vowed to condition raising the debt ceiling on deep spending cuts, which the Democrats strongly oppose. In March, the fiscal cliff could again rear its head, as $110 billion in spending cuts will kick in if Congress cannot agree on a new budget.

Taking a look at fundamentals, Japanese Leading Indicators, a third-tier index of economic indicators, recorded a reading of 91.9%. This was a disappointment, as the markets had anticipated a reading of 93.1%. Later on Thursday, Current Account will be released. This key indicator rebounded in December with a surplus of 0.41 trillion yen, but the markets are expecting a lower surplus this month, with an estimate of 0.31T. Current Account is a key release, and its readings will be an important indication of how successful Prime Minister Abe is in kick-starting the Japanese economy. In the US, the markets will be watching the weekly Unemployment Claims. The key employment indicator disappointed last week, hitting 372 thousand, which was well above the estimate. The markets are expecting an improvement in the upcoming release, with an estimate of 361K.

USD/JPY for Thursday, January 10, 2013

USD/JPY Jan 10 at 11:50 GMT

88.14 H: 88.30 L: 87.98

USD/JPY Technical

USD/JPY is showing greater movement in the European session. The pair moved higher, but subsequently retracted, dropping close to the 88 line. The pair is receiving weak support at 87.95, and this line could see activity if the pair’s downward trend continues. On the upside, 88.55 is steady. A breach of this line would be a huge development, as this line has not been tested since July 2010.

• Current range: 87.95 to 88.55.

Further levels in both directions:
• Below: 87.95, 87.36, 86.97, 86.37, 86, 85.62 and 85.15.
• Above: 88.55, 89.31, 89.85, 90.23 and 90.91.

OANDA’s Open Position Ratios

The USD/JPY ratio is showing movement towards short positions. This component now enjoys a comfortable majority of the open positions. The recent movement in the ratio could signal that we will see the yen show improvement. The pair’s current trend is reflected in the ratio movement, as USD/JPY has lost some ground as it trades slightly above the 88 level.

The pair continues to fluctuate, as it has for most of the week. The yen lost ground on Wednesday, and crossed above the important 88 level. Will the upward trend continue? USD/JPY continues to trade at very high levels, and could make a move towards the mid-88 range before the end of the week.

USD/JPY Fundamentals

• 5:00 Japanese Leading Indicators. Estimate 93.1%. Actual 91.9%.
• 13:30 US Unemployment Claims. Estimate 361K.
• 15:00 US Wholesale Inventories. Estimate 0.2%.
• 15:30 US Natural Gas Storage. Estimate -185B.
• 18:00 US 30-year Bond Auction.
• 18:10 US FOMC Member Esther George Speaks.
• 19:00 US FOMC Member James Bullard Speaks.

*Key releases are highlighted in bold

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