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By Kenny Fisher

The Japanese yen has slipped against the U.S. dollar, as USD/JPY trades in the high-99 range in Thursday's European session, within striking distance of the critical 100 level. It's been a very quiet week so far, but the markets will have plenty of U.S. data to sift through on Thursday. Taking a look at today's economic releases, Japanese GDP continues to lose ground, dropping to its lowest level since Q4 of 2012. There are two key releases out of the US – Trade Balance and the all-important Unemployment Claims. As well, incoming Federal Reserve Chair Janet Yellen will testify before the Senate Banking Committee, ahead of her confirmation hearing.

The dollar took advantage of a weak Japanese GDP release on Thursday. Although the October gain of 0.5% edged above the estimate of 0.4%, GDP has been falling in 2013, pointing to weakening economic activity. The yen responded with losses and is knocking on the doorstep of the 100 level.

Japanese major releases have not had a good week. Core Machinery Orders was a major disappointment, declining by 2.1% in October, compared to a sharp gain of 5.4% in September. The markets had expected a better reading, with the estimate standing at -1.8%. This weak result comes on the heels of Tertiary Industry Activity which posted its third decline in the last four releases. Current Account, which is closely linked to currency demand, also looked sluggish, posting its first decline since October 2012.

Incoming Federal Reserve head Janet Yellen will testify before the powerful Senate Banking Committee on Thursday. The hearing could be a rough one for Yellen, as Republicans are expected to grill her on the Fed’s QE program, which they oppose. Yellen is considered dovish in her monetary outlook and supported Bernard Bernanke in implementing QE, which currently stands at $85 billion each month. On Wednesday, Yellen said that the economy is not performing up to its potential and unemployment remains too high.

It's been an unusually quiet week so far in the US, but the dollar has managed just fine, riding on the coattails of Friday's superb Non-Farm Payrolls. The markets had very low expectations from the key indicator, one of the most important economic releases. The estimate for the October release stood at just 121 thousand, as there was concern that the reading would be artificially low due to the government shutdown in October. However, the indicator put those concerns to rest, as the indicator soared to 204 thousand, its highest level in eight months. The outstanding NFP figure bolstered the U.S. dollar against the major currencies, and has increased speculation that the Fed might press the tapering trigger in December. Such talk could bolster the U.S. currency, as a reduction in QE is bullish for the dollar. At the same time, speculation about a scaling down in QE introduces some uncertainty and volatility in the currency markets.

USD/JPY for Thursday, November 14, 2013

Forex Rate Graph 21/1/13

USD/JPY November 14 at 13:20 GMT

USD/JPY 99.92 H: 100.04 L: 99.13

USD/JPY Technical

S3 S2 S1 R1 R2 R3
97.18 98.15 98.92 100.00 101.19 1012.53

  • USD/JPY is up sharply in Thursday trading. The pair briefly broke above the 100 line in the European session.
  • On the downside, 98.92 is the next support line. This line has some breathing room as the pair trades at higher levels. This is followed by a support level at 98.15.
  • The pair is testing resistance at the 100 level and we could see this line break during the day. This is followed by resistance at 101.19, which has held firm since mid-July.
  • Current range: 98.92 to 100.00

Further levels in both directions:

  • Below: 98.92, 98.15, 97.18, 96.00, 95.06 and 94.20
  • Above: 100, 101.19, 102.53 and 103.30

OANDA's Open Positions Ratio

USD/JPY ratio is pointing to gains in short positions, continuing the trend we have seen throughout the week. This is not reflected in the current movement of the pair, as the yen is down sharply against the U.S. dollar. The ratio is made up of a majority of long positions, indicative of a trader bias towards the U.S. dollar continuing to post gains at the expense of the yen.

The pair is marching higher and could break above the key 100 level shortly. We can expect movement from USD/JPY during the North American session, as the U.S. releases trade balance and unemployment claims later on.

USD/JPY Fundamentals

  • 4:3o Revised Industrial Production. Estimate 1.5%. Actual 1.3%.
  • 13:30 U.S. Trade Balance. Estimate -38.7B.
  • 13:30 U.S. Unemployment Claims. Estimate 331K.
  • 13:30 U.S. Preliminary Non-Farm Productivity. Estimate 1.3%.
  • 13:30 U.S. Preliminary Unit Labor Costs. Estimate 1.1%.
  • 15:00 Federal Reserve Chairperson-Designate Janet Yellen Testifies. Yellen will testify before the Senate Banking Committee.
  • 15:30 U.S. Natural Gas Storage. Estimate 21B.
  • 16:00 U.S. Crude Oil Inventories. Estimate 0.7M.
  • 18:01 U.S. 30-year Bond Auction.

*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.

Source: USD/JPY - Yen Drops as Japanese GDP Continues to Slide