USD/JPY – Yen Remains Steady After Italian Election Fallout

USD/JPY remains steady, as the pair was trading in the mid-91 range. The markets continue to nervously follow events in Italy, with concerns increasing about prolonged political instability in the Eurozone’s third largest economy. In the US, New Home Sales and Consumer Confidence both looked razor sharp on Tuesday. There are two more key economic releases today – Core Durable Goods Orders and Pending Home Sales. As well, Fed Chairman Bernard Bernanke continues to brief lawmakers on Capitol Hill. Japanese Retail Sales declined 1.1%, a disappointing drop after posting two consecutive gains.

The results of this week’s parliamentary election in Italy shocked the country, and rattled markets in the Eurozone and beyond. The 5-Star Movement, which was largely a protest movement that was dubbed a “non-party”, managed to win more votes than any other single party. The Center-left bloc, headed by Pier Luigi Bersani, will have a majority in the lower house of parliament, but there is a stalemate in the Senate. This leaves the country in a political deadlock, as a workable government needs a majority in both houses. Prime Minister Monti’s party fared poorly at the polls, reflecting widespread dissatisfaction with Monti’s tough austerity measures. The inconclusive results were a worst-case scenario for the markets, and the euro took a hit on Monday, losing more than a cent against the US dollar. The euro has since leveled off, but remains under pressure.

In the US, the Federal Reserve is back in the spotlight. On Tuesday, Fed Chair Bernard Bernanke testified before the US Senate Banking Committee, and sought to reassure the markets that the Fed was intent on continuing the current round of QE. There had been some speculation after the release of minutes from the most recent policy meeting that the Fed was considering an end to QE, but Bernanke stated that Fed was likely to continue with QE and ultra-low interest rates. Bernanke will testify before the House of Representatives on Wednesday, but analysts are not expecting any dramatic new developments.

On Tuesday, US key releases sparkled. CB Consumer Confidence hit 69.6 points, crushing the estimate of 60.8 points. New Home Sales also shone, jumping to 437 thousand. The market estimate stood at 381K. There was also good news from the manufacturing sector, as the Richmond Manufacturing Index hit 6 points, easily beating the forecast of -4. On Wednesday, the US will release additional housing and manufacturing numbers. If the indicators can repeat Tuesday’s performance, we could see the dollar post some gains at the expense of the yen.

USD/JPY for Wednesday, Feb 27, 2013

USD/JPY Feb 27 at 11:20 GMT

91.60 H: 92.26 L: 91.59

In Wednesday trading, USD/JPY is steady. The proximate support and resistance lines remain in place (S1 and R1 above).The pair is facing weak resistance at 91.94. This line has already been breached today, and could face further activity. There is stronger resistance at 92.53. On the downside, 91.30 is a weak support level.  This is followed by support below the 91 line, at 90.91.

• Current range: 91.30 to 91.94

Further levels in both directions:

• Below: 91.30, 90.91, 90.18, 89.34 and 88.19
• Above: 91.94, 92.53, 93.14, 94.59 and 95.27

OANDA’s Open Position Ratios

The USD/JPY ratio is quiet, after pointing to movement in long positions on Tuesday. This lack of activity is reflected in the current trend of the pair, as USD/JPY has leveled off, trading quietly in the mid-91 range. Given that the pair has been quite active, the lack of movement in the ratio will likely be of short duration.

Despite the drama in Italy and strong US numbers on Tuesday, the yen continues to hold its own against the dollar. Will this continue? A lot could depend on some key releases due out of the US on during the week. As well, remarks by Fed Chief Bernanke that QE and low interest rates will continue is dollar-negative and bullish for the Japanese yen.

USD/JPY Fundamentals

• 13:30 US Core Durable Goods Orders. Estimate 0.3%.
• 13:30 US Durable Goods Orders.Estimate -4.8%.
• 15:00 US Fed Chairman Bernard Bernanke Speaks. Bernanke will testify on the Semiannual Monetary Policy Report before the House Financial Services Committee.
• 15:00 US Pending Home Sales. Estimate 1.7%.
• 15:30 US Crude Oil Inventories. Estimate 2.4M.
• 23:15 Japanese Manufacturing PMI.
• 23:50 Japanese Preliminary Industrial Production. Estimate 1.6%.

*Key releases are highlighted in bold

*All release times are GMT

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