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By Kenny Fisher

USD/JPY continues to trade at high levels as the pair begins the new trading week above the 105 line. Japanese releases ended last week on a positive note as Average Cash Earnings improved to 0.5%, a ten-month high. Over in the US, today's sole event is Pending Home Sales. The markets are expecting a strong gain after a string of declines. There are no Japanese releases this week.

Late last week, Unemployment Claims bounced back nicely following two disappointing releases. The key employment indicator fell to 338,000, compared to 379,000 in the previous release. The estimate stood at 346,000. With the Federal Reserve poised to begin its long-awaited QE taper next month, employment releases have taken on added significance. If the US labor market continues to improve, the Fed could decide on another taper early in 2014, which would give a boost to the US dollar against its major rivals.

Japan's economy is heading in the right direction, but the Japanese consumer has not jumped on to the bandwagon just yet. Household Spending dropped to a paltry 0.2% in November. The markets had expected a much better release, with the estimate standing at 1.9%. Preliminary Industrial Production also fell, dropping to 0.1%, well off the estimate of 0.6%. There was good news as well, as Retail Sales jumped 4.0%, its sharpest gain since August 2010. The estimate stood at 2.9%. Inflation continues to rise as Tokyo Core CPI posted a respectable gain of 0.7%, matching the forecast.

The Bank of Japan released the minutes of its most recent policy meeting on Thursday and there was a consensus that the economic recovery is continuing. However, two board members expressed concern about the pace of growth as GDP in Q3 showed a gain of just 0.3%, well off the Q2 reading of 0.9%. Even if GDP expands in Q4, there is concern that a sales tax hike in April could slow growth in 2014. The minutes also indicated that one policy member expressed doubt that the BOJ would reach its inflation target of 2% by 2015. However, BOJ Governor Haruhiko Kuroda insists that the country is on track to meet this goal and he reiterated this on Thursday in a meeting with Prime Minister Shinzo Abe. The BOJ's aggressive monetary policy has revived the economy and put the breaks on deflation, but has severely weakened the yen, which has lost 17% of its value against the greenback in 2013.

USD/JPY for Monday, December 30, 2013

Forex Rate Graph 21/1/13

USD/JPY December 30 at 11:25 GMT

USD/JPY 105.23 H: 105.41 L: 105.12

USD/JPY Technical

S3 S2 S1 R1 R2 R3
102.53 103.30 104.17 105.70 106.85 107.73
  • USD/JPY is trading quietly in Monday trading. The pair touched a high of 1.0531 early in the Asian session.
  • 104.17 continues to provide support. This line has some breathing room as the pair trades above the 105 line. This is followed by support at 103.30.
  • On the upside, there is resistance at 105.70. This is followed by a resistance line at 106.85, which has remained intact since September 2008.
  • Current range: 104.17 to 105.70

Further levels in both directions:

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

OANDA's Open Positions Ratio

USD/JPY ratio is not showing much movement in Monday trading. This is consistent with what we are seeing from the pair, which has been trading quietly. The ratio is almost evenly split between short and long positions, reflecting a lack of bias in trader sentiment as to which direction the yen will take next.

USD/JPY is trading above the 105 line as the yen's woes continue. We could some stronger movement in the North American session as the US releases key housing numbers later in the day.

USD/JPY Fundamentals

15:00 US Pending Home Sales. Exp. 1.1%.

*Key releases are highlighted in bold

Source: Yen Remains Under Pressure