USD/JPY – Yen Hits Three-Week Highs Against Struggling Dollar

USD/JPY is in the high-101 range on Tuesday, its lowest level since mid-April. On the release front, Japanese markets remain closed for holidays for a second straight day. In the US, there are only three releases on the schedule, highlighted by Trade Balance. The markets are expecting a narrower deficit in April.

The markets are keeping an eye on the Federal Reserve, as Fed chair Janet Yellen will testify before Congress on Wednesday and Thursday. Yellen has sounded cautious about the US economy, although the Fed continues to trim its QE scheme, which is currently running at $45 billion each month. Of particular interest to the markets is the possibility of a rate hike in early 2015, and Yellen will likely address this topic in her remarks. Traders should expect some market movement as a result of Yellen’s testimony.

US employment releases looked excellent on Friday. Nonfarm Payrolls jumped to 288 thousand, easily beating the estimate of 216 thousand. Federal Reserve policymakers were clearly pleased with the news, and FOMC member Richard Fisher said that the US economy is “moving in the right direction”. The Unemployment Rate kept pace, dropping to 6.3%, its lowest level since September 2008. At the same time, the participation rate in the labor force dropped, so slack remains in the US job market, despite the strong releases in April.

Last Thursday, Japanese Household Spending shocked the markets with a surge of 7.2% in April, crushing the estimate of 1.7%. Analysts were concerned that this important consumer spending indicator might take a hit from the steep hike in the sales tax which kicked in on April 1. The superb gain indicates that the Japanese consumer continues to spend and reinforced last week’s statement from the Bank of Japan that the economy is not showing ill effects from the rise in the sales tax. The policy statement also stated that the current monetary base would continue and said that it expects to meet its inflation target in 2015. The BOJ’s target for inflation is 2% and inflation indicators have been steadily improving.

As expected, the Federal Reserve trimmed its QE program by $10 billion on Wednesday. This marks the fourth cut since December, reducing the asset purchase scheme to $45 billion/month. The tapers are no longer creating headlines as they did just a few months ago, and the dollar didn’t get any lift against its major rivals. What did catch the markets’ attention was the Fed statement that interest rates would remain low for a “considerable time” after QE ends. The markets expect QE to wind up before the end of the year, so we could see a rate hike in early 2015, depending of course, on the strength of the US economy and the job market.

USD/JPY for Tuesday, May 6, 2014

USD/JPY May 6 at 11:50 GMT

USD/JPY 101.75 H: 102.15 L: 101.70

USD/JPY Technical

• USD/JPY has lost ground in Tuesday trade. The pair broke below the 102 line early in the European session.
• On the upside, 102.53 has some breathing room as the pair trades at lower levels.
• 101.19 is providing support.
• Current range: 101.19 to 102.53

Further levels in both directions:

• Below: 101.19, 100.00, 99.57 and 98.97.
• Above: 102.53, 103.07, 104.17, 105.70 and 106.85.

OANDA’s Open Positions Ratio

USD/JPY ratio is pointing to gains in short positions in Tuesday trade, reversing the direction seen a day earlier. This is consistent with the pair’s movement, as the yen has posted gains. The ratio is made up of a substantial majority of long positions, indicating trader bias towards the dollar reversing directions and moving upwards.

The pair has dropped below the 102 line on Tuesday. The US dollar is under pressure in the European session.

USD/JPY Fundamentals

• 12:30 US Trade Balance. Estimate -40.1B.
• 14:00 US IBD/TIPP Economic Optimism. Estimate 47.6 points.
• 21:30 US FOMC Member Jeremy Stein Speaks.

*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.