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By Kenny Fisher

USD/JPY continues to move higher, as the pair trades in the mid-104 range in Friday trading. The struggling yen has lost close to 200 points since Wednesday and is trading at five-year lows against the soaring US dollar. In economic news, Thursday's US releases were a major disappointment, as Unemployment Claims rose for the second consecutive week. As well, Existing Home Sales and the Philly Manufacturing Index both fell short of their estimates. On Friday, the Bank of Japan said that it would continue its monetary base policy statement as well as its QE program. In the US, today's highlight is Final GDP.

The yen continued to weaken following the BOJ Monetary Policy Statement on Friday. As expected, the Bank is holding steady with its monetary base and asset purchase programs. The BOJ will continue to increase the monetary base by 60-70 trillion yen annually and the purchase of Japanese government bonds by 50 trillion each year. The Bank's aggressive monetary policy has revived the economy and put the brakes on deflation, but has severely weakened the yen, which is trading at five-year lows against the US dollar.

Anyone looking for some drama from Bernard Bernanke and the Federal Reserve on Wednesday was not left disappointed. The Fed announced that it was tapering its QE program by $10 billion a month, commencing in January. This will reduce the Fed's asset purchases to $75 billion every month, comprised of $40 billion in Treasuries and $35 billion in mortgage bonds. The announcement came as somewhat of a surprise, as most analysts had expected the Fed to hold off on any QE reductions until early next year. The currency markets reacted sharply to the news, and USD/JPY jumped to 104.53, its highest level since October 2008.

In its dramatic tapering announcement, the Federal Reserve was careful to separate tapering from rate hike expectations. Fed chairman Bernard Bernanke stated that interest rates are likely to remain low even after the unemployment rate drops below 6.5%. Previously, the Fed had stated that it would start to consider rate increases when unemployment fell below this level. Bottom line? With the unemployment rate at 7.0%, it could be a while before we see higher interest rates in the US.

Overshadowed by the Fed's bombshell announcement, a two-year, bipartisan budget agreement is sailing through Congress. The deal was overwhelmingly approved in the House of Representatives last week and the Senate followed suit on Wednesday, passing the measure by a vote of 64-36. The bill will now go to President Obama for his signature before becoming law. The agreement sets limits on government spending for two years and reduces the deficit by a modest $23 billion. Democrats and Republicans both had criticism of the proposal, but there is general agreement in Washington that the compromise reached is a positive step which removes the threat of a shutdown which paralyzed the government in October for 16 days.

USD/JPY for Friday, December 20, 2013

Forex Rate Graph 21/1/13

USD/JPY December 20 at 9:40 GMT

USD/JPY 104.47 H: 104.59 L: 104.24

USD/JPY Technical

S3S2S1R1R2R3
102.53103.30104.17105.70106.85107.73
  • USD/JPY has steadied on Thursday, after sharp gains on the previous day. The pair showed some movement in the Asian session, dropping to a low of 103.79. It has since moved back above the 104 level.
  • 104.17 has reverted to a support role as the dollar continues to gain ground. This weak line could face strong pressure during the day. This is followed by support at 103.30.
  • On the upside, 105.70 is providing resistance. This is followed by a resistance at 106.85, which has remained firm since September 2008.
  • Current range: 103.30 to 104.17

Further levels in both directions:

  • Below: 104.17, 103.30, 102.53, 101.19 and 100.00
  • Above: 105.70, 106.85 and 107.73 and 108.77

OANDA's Open Positions Ratio

The USD/JPY ratio is pointing to gains in short positions in Friday trading. This is not reflected in the pair, as the yen continues to lose ground against the dollar. The ratio is made up of a majority of long positions, reflecting a trader bias towards the dollar continuing to gain ground against the yen.

The yen remains under strong pressure, as it trades in the mid-104 range. The pair has edged higher in the European session and we could see continuing limited movement in the North American session.

USD/JPY Fundamentals

  • 2:58 Bank of Japan Monetary Policy.
  • 7:30 Bank of Japan Press Conference.
  • 13:30 US Final GDP. Estimate 3.6%.
  • 13:30 US Final GDP Price Index. Estimate 2.0%.

*Key releases are highlighted in bold

*All release times are GMT