Market Overview

USD/JPY – Yen Reverses Slide, Pushes Below 89 level

The Japanese yen, which has been pummeled by the US dollar in recent trading, reversed direction and dropped below the 89 line, following remarks by a senior Japanese cabinet minister that a weak yen could hurt the Japanese economy. USD/JPY is currently trading in the 88.80 range. Japanese Preliminary Machine Tool Orders looked awful, posting its sharpest decline in more than three years. After a quiet day on Monday, the US markets are in full swing today, with three key releases – Core Retail Sales, PPI, and Retail Sales.

The Japanese yen finally showed some life, following surprising comments from Akira Amari, Japan's Economy Minister. Amari said that a severely weakened yen would be good for the export sector, but could still hurt the Japanese economy, as it would increase the price of imported goods and impact negatively on people's livelihood. The remarks surprised the markets, as Prime Minister Abe has been continually talking about a lower yen and has been applying strong pressure on the Bank of Japan to implement further easing steps which will decrease the yen's value. Following the dovish remarks, the yen improved sharply against the dollar. Meanwhile, Bank of Japan Governor Masaaki Shirakawa stated that the BOJ will introduce further monetary easing steps, and warned that the economy would continue to struggle due to weak global conditions. The BOJ implemented monetary easing throughout 2012, and is widely expected to follow suit when it announces its benchmark interest rate on January 21. Analysts expect the central bank to double its inflation target to 2%, which is the government's stated target.

The US Trade Deficit ballooned last month, hitting its highest levels since April. The sharp demand for imports signals that US consumers are purchasing more imported goods, which is good news for the global economy. At the same time, the US recovery is still having trouble getting on track, as the US continues to release mixed data. Unemployment figures have not looked good of late, and the staggering debt load will have to be dealt with by a divided Congress. In a closely watched speech on Monday, Federal Reserve Chairman Bernard Bernanke added his concern about the speed of the US recovery. Bernanke noted that the economy has shown signs of improvement, but he was still unsatisfied with the economy's progress. Given these sentiments, it seems unlikely that the Fed will consider ending the current round of QE in 2013, barring a spectacular recovery by the US economy during the year.

In Tuesday's releases, Japanese Preliminary Machine Tool Orders was very weak, posting a decline of 27.5%. The indicator has had a dismal 2012, and showed very gains in that time. However, this reading was exceptionally poor, as the indicator posted its sharpest drop since November 2009. Later on Tuesday, Core Machinery Orders will be released. After a strong December release, the markets are bracing for a sharp drop, with an estimate of a modest gain of 0.4%. In the US, the markets will have plenty of numbers to crunch, as the US releases Retail Sales and PPI figures. As well, the Empire State Manufacturing Index will be released. This important indicator plunged in December, and the markets are expecting a turnaround in the upcoming reading.

USD/JPY for Tuesday, January 15, 2013

 


Forex Rate Graph 15/1/13

 

USD/JPY Jan 15 at 11:00 GMT

88.79 H: 89.63 L: 88.62

USD/JPY Technical

 

<table 0"="" style="border: solid 1px #666666; border-collapse: collapse; padding: 0;" cellpadding="0" cellspacing="0" width="100% border="> <tbody> <tr style="background-color: #ebebeb;"> <td style="text-align: center; border: solid 1px #666666;">S3</td> <td style="text-align: center; border: solid 1px #666666;">S2</td> <td style="text-align: center; border: solid 1px #666666;">S1</td> <td style="text-align: center; border: solid 1px #666666;">R1</td> <td style="text-align: center; border: solid 1px #666666;">R2</td> <td style="text-align: center; border: solid 1px #666666;">R3</td> </tr> <tr> <td style="text-align: center; border: solid 1px #666666;">87.36</td> <td style="text-align: center; border: solid 1px #666666;">87.95</td> <td style="text-align: center; border: solid 1px #666666;">88.55</td> <td style="text-align: center; border: solid 1px #666666;">89.31</td> <td style="text-align: center; border: solid 1px #666666;">89.85</td> <td style="text-align: center; border: solid 1px #666666;">90.23</td> </tr> </tbody> </table> <p><br> </p> <p>USD/JPY dropped sharply in the Asian session, touching a low of 88.62, before consolidating at 88.85. The pair is steady in the European session, and is receiving support at 88.55. This is a weak line, and could face pressure if the yen continues to improve. On the upside, 89.31 is providing resistance. This line has gained strength as the pair trades below the 89 line. </p> <p>• Current range: 88.55 to 89.31.</p> <p>Further levels in both directions:<br> • Below: 88.55, 87.95, 87.36, 86.97, 86.37 and 86.<br> • Above: 89.31, 89.85, 90.23, 90.91, 91.30 and 91.94.</p> <p><strong>OANDA's Open Position Ratios</strong> </p> <p>The USD/JPY ratio has reversed movement, and is currently moving back towards long positions. This bias is reflected in the current downward movement by USD/JPY, and could indicate that the Japanese yen will continue to improve against the US dollar. This would mean that the pair will continue to move away from the critical 90 level, at least for now.<br> The markets seized on the comments of Japan's Economy Minister warning about a weak yen. However, comments from a cabinet minister are not the same as economic policy, and the platform of the Abe government seems clear, which is to lower the value of the Japanese currency. Traders can expect USD/JPY to remain at very high levels.</p> <p><strong>USD/JPY Fundamentals</strong> </p> <p>• 6:00 Japanese Preliminary Machine Tool Orders. Actual -27.5%.<br> • 13:00 US FOMC Member Eric Rosengren Speaks.<br> • <strong>13:30 US Core Retail Sales. Estimate 0.2%.<br> • 13:30 US PPI. Estimate -0.1%.<br> • 13:30 US Retail Sales. Estimate 0.2%.<br> • 13:30 US Core PPI. Estimate 0.2%</strong>.<br> • 13:30 US Empire State Manufacturing Index. Estimate 1.9 points.<br> • 15:00 US Business Inventories. 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