USD/JPY – Yen Posts Sharp Gains Ahead of US Releases

The dollar pushed across the critical 100 line on Tuesday, for the first time since early June. However, the yen has fought back on Wednesday, as USD/JPY trades in the low-99 range in the European session. It promises to be a busy day, with the US releasing four key events – ADP Non-Farm Payrolls, Trade Balance, Unemployment Claims and the ISM Non-Manufacturing PMI. There are no Japanese releases on Wednesday.

Japan’s aggressive monetary policy may be bearing some fruit, as Japanese economic indicators are showing improvement. Last week, Tokyo Core CPI, the most important Japanese inflation index, came in above zero, indicating inflation. Manufacturing, housing and retail sales numbers were also solid. On Sunday, the important Tankan indexes, which are released quarterly, were both positive. The Manufacturing Index jumped from -8 points to 4 points, and beat the estimate of 3 points. This was the best showing since Q1 of 2011. The Non-Manufacturing Index kept pace, climbing from 6 points to 12 points, which matched the estimate. If the positive news continues, we could see increased market confidence in the Japanese economy as well as a stronger yen.

Global growth has been sputtering for some time, and there was more bad news on Friday, as an HSBC report downgraded its forecast for global growth. Global GDP was cut from 2.8% to 2.0% in 2013, and from 3.1% to 2.6% in 2014. In its report, HSBC said that it had lowered its forecast due to the US Federal Reserve decision to cut QE, as well as a sharp slowdown in China and other emerging countries such as India and Brazil. The report also revised China’s GDP from 8.2% to 7.4% for 2013 and from 8.4% to 7.4% for next year. Weaker global growth will be bad news for countries which heavily depend on exports, such as Japan, Canada and Australia, and could have a negative impact on these countries’ currencies.

There was another major headache for the Eurozone, this time courtesy of Portugal. The country finds itself gripped in a deep political crisis, which sent the euro lower and could have repercussions for the entire Eurozone. The country entered into a bailout agreement back in 2011, worth EUR 78 billion. For its part, Portugal agreed to implement tough austerity measures. However, the economy has not bounced back, as Portugal been stuck in a recession for three years and unemployment is a staggering 18%. Finance Minister Vitor Gaspar, who has been in charge of the austerity drive, shocked the markets by resigning on Monday, and the crisis has intensified with the resignation of the foreign minister. The safe-haven yen is broadly stronger on the news, and has made gains against the dollar. 

USD/JPY for Wednesday, July 3, 2013

USD/JPY 99.36 H: 100.82 L: 99.28

USD/JPY Technical

USD/JPY has reversed direction, as the yen posts strong gains on Wednesday. The pair is facing resistance at 99.57. This is a weak line, and could fall if the dollar can rebound. The next resistance line is the 100 line, which continues to see activity. On the downside, the pair is receiving support at 98.43. This is followed by a support level at 97.83.

• Current range: 98.43 to 99.57

Further levels in both directions:

• Below: 98.43, 97.83, 97.18, 96.03 and 94.91
• Above: 99.57, 100.00, 100.85, 101.66 and 102.52

OANDA’s Open Positions Ratio

USD/JPY ratio has shifted directions, and is pointing to movement towards long positions. We are not seeing this reflected in the pair, as the yen has bounced back and posted strong gains against the dollar. Long positions continue to dominate the open positions, indicating a strong trader bias towards the dollar recovering and moving higher.

The yen has recovered Tuesday’s losses and then some, and is back below the 100 line. We could see some volatility from the pair during the day, with the US releasing four major events later on.

USD/JPY Fundamentals

• 11:30 US Challenger Job Cuts.
• 12:15 US ADP Non-Farm Employment Change. Estimate 161K.
• 12:30 US Trade Balance. Estimate -40.3B.
• 12:30 US Unemployment Claims. Estimate 345K.
• 14:00 US ISM Non-Manufacturing PMI. Estimate 54.3 points.
• 14:00 US Treasury Secretary Jack Lew Speaks.
• 14:30 US Crude Oil Inventories. Estimate -2.6M.
• 16:00 US Natural Gas Storage. Estimate 75B.

*Key releases are highlighted in bold

*All release times are GMT

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