USD/JPY remains under pressure in Tuesday trading, as it trades at high levels. The dollar has posted some gains, as the pair trades in the high-102 range in the European session. In economic news, it’s another quiet day in the US, as there are no fundamental releases. However, the market will have a chance to scrutinize remarks by US Treasury Secretary Jack Lew and two FOMC members. In Japan, All Industries Activity dropped sharply, falling from 0.6% to -0.3%. This weak reading did match the estimate. Later on Tuesday, Japan will release Trade Balance. The markets are expecting a smaller deficit in the May release. The markets will be keeping close tabs on the US Federal Reserve, which on Wednesday will release the minutes of its most recent policy meeting. Also on Wednesday, the BOJ will release a Monetary Policy Statement.
The markets were treated to a host of US releases last week, and for the most part, they didn’t like what they saw. US Inflation and manufacturing numbers fell below expectations, and housing numbers were also weak. Unemployment Claims, one of the most important releases and often a market-mover, had looked impressive in recent readings. However, the key indicator couldn’t keep pace last week, as the number of new claims jumped to 360 thousand, much higher than the estimate of 332 thousand. There was some good news from Building Permits, which were up nicely. On Friday, there was some relief from UoM Consumer Sentiment which jumped from 72.3 points to 83.7 points. This was well above the estimate of 77.9 points, and points to a sharp increase in consumer confidence. However, the host of weak US numbers we saw last week will again bring into question the extent of the US recovery, which has not been able to demonstrate sustained growth and continuous positive releases.
In Japan, there was some good news last week, as Core Machinery Orders sparkled. The important manufacturing indicator jumped from 7.5% to 14.2%, blowing away the estimate of 3.1%. This release comes on the heels of a solid GDP release, which hit a four-month high as it gained 0.9%. The improvement in Japanese numbers is encouraging, and there is a growing feeling in the market that “Abenomics” is starting to bear fruit. However, the proof in the pudding will be Japanese inflation numbers, which for the most part continue to point to deflation, the sworn enemy of the government and the Bank of Japan. Meanwhile the yen continues to slip against the US dollar, which is flirting with the 103 line.
The Federal Reserve has not been in the spotlight recently, but that could change if the Fed modifies its current round of quantitative easing, which involves the purchase of $85 billion in assets each month. The Fed will be tempted to act if it feels that the US recovery has gained more traction, giving it some room to ease up on QE. Last week, John Williams, president of the Federal Reserve Bank of San Francisco, stated that the Fed could begin reducing QE this summer and terminate bond buying late in 2013. As the QE program is dollar negative, any moves by the Fed to wind up QE would be bullish for the dollar at the expense of the euro. So traders can expect any new developments (real or rumor) regarding QE to impact on the currency markets. We should get a better idea of where the Fed stands on Wednesday, when the minutes of the FOMC’s last policy meeting, and Fed chairman Bernard Bernanke testifies before Congress. 
USD/JPY May 21 at 10:35 GMT
USD/JPY 102.83 H: 102.75 L: 102.15
USD/JPY continues to trade close to the 103 level. The pair faces strong resistance at 103.75. On the downside, the pair is receiving support at 102.60. This is a weak line, and could face pressure if the yen shows any strength. This is followed by a stronger support level at 101.81.
- Current range: 102.60 to 103.75
- Below: 102.60, 101.81, 100.54, 100 and 99.57
- Above: 103.75, 104.94, 105.87 and 106.55
After no movement on Monday, USD/JPY ratio is busy once again, pointing to movement towards long positions. This is not consistent with what we are seeing from the pair, as the dollar has pushed back into the high-102 range. The ratio is showing a slight majority of open positions in favor of short positions, indicating that trader sentiment is biased towards the yen making up ground.
USD/JPY continues to trade at multi-year highs, and could once again test the 103 line. We could see some increased movement from the pair following the release of Japanese Trade Balance later on Tuesday.
USD/JPY Fundamentals
- 4:33 Japanese All Industries Activity. Estimate -0.3%. Actual -0.3%.
- 14:00 US Treasury Secretary Jack Lew Speaks.
- 15:30 US FOMC Member James Bullard Speaks.
- 17:00 US FOMC Member William Dudley Speaks.
- 23:50 Japanese Trade Balance. Estimate -0.61T.