USD/JPY – Yen Slump Continues After Fed Minutes

The US dollar continues to gain ground against the Japanese yen, as USD/JPY flirts with the 104 line early in the North American session. On the release front, Japanese Manufacturing PMI improved to 52.4 points, beating the estimate. US Unemployment Claims beat the estimate, coming in at 298 thousand. Later in the day, we’ll get a look at the Philly Fed Manufacturing Index. The markets are braced for a sharp drop in the July reading.

In a highly anticipated event, the Federal Reserve released its policy meeting minutes on Wednesday. The minutes were hawkish in tone, with the Fed saying that an interest rate hike could come sooner rather than later if employment numbers continue to improve. The Fed said that the economy continues to improve, but the QE program, which is scheduled to wind up in October, will not be accelerated. The US dollar was broadly higher after the release of the minutes and gained about 80 points on Wednesday at the yen’s expense.

The US economy has been moving in the right direction, but inflation numbers in the US remain at very low levels. On Tuesday, CPI and Core CPI, the primary gauges of consumer inflation, both posted paltry gains of 0.1%. These weak readings come on the heels of PPI, a manufacturing inflation index, which also came in at 0.1% last month. Weak inflation is one reason why the Federal Reserve is in no rush to raise interest rates, as low inflation points to slack in the economy. Meanwhile, US housing numbers were sharp on Tuesday. Building Permits improved to 1.05 million, beating the estimate of 1.00 million. Housing Starts jumped to 1.09 million, easily beating the estimate of 0.97 million.

Financial leaders and central bankers from around the world will gather in Jackson Hole, Wyoming for a conference which starts on Thursday. This will be Janet Yellen’s first appearance as Fed chair at the conference. There is speculation that Jackson Hole could be a currency event, which would be a marked departure from the conference’s usual focus on the US labor market and monetary policy. If this is the case, we could see a sharp reaction from the currency markets. Traders should treat Yellen’s speech as a market-moving event.

USD/JPY for Thursday, August 21, 2014

USD/JPY August 21 at 13:45 GMT

USD/JPY 103.71 H: 103.96 L: 102.73

USD/JPY Technical

• USD/JPY edged higher in the Asian session, and has been stable in the European and North American sessions.
• 103.07 is providing support.
• 104.17 has weakened as the pair trades close to the 104 line.
• Current range: 103.07 to 104.17

Further levels in both directions:

• Below: 103.07, 102.53, 101.19 and 100
• Above: 104.17, 105.44, 107.68 and 108.57

OANDA’s Open Positions Ratio

USD/JPY ratio is pointing to gains in short positions on Thursday, continuing the trend which has marked the ratio for most of the week. This is not consistent with the pair’s movement, as the dollar has posted small gains. The ratio has a majority of long positions, indicating trader bias towards the dollar continuing its upward movement.

USD/JPY Fundamentals

• 4:30 Japanese Manufacturing PMI. Estimate 52.4 points. Actual 51.7 points.
• 12:30 US Unemployment Claims. Estimate 302K. Actual 298K.
• 13:45 US Flash Manufacturing PMI. Estimate 55.7 points.
• 14:00 Philly Fed Manufacturing Index. Estimate 19.7 points.
• 14:00 US Existing Home Sales. Estimate 5.01M.
• 14:00 US CB Leading Index. Estimate 0.6%.
• 14:30 US Natural Gas Storage. Estimate 83B.
• Day 1 – Jackson Hole Symposium.

*Key releases are highlighted in bold

*All release times are GMT

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