USD/JPY

The US dollar has steadied on Wednesday following gains a day earlier. In the European session, USD/JPY is trading slightly below the 105 level. In the US, today’s highlight is the ADP Non-Farm Employment Change. The markets are expecting a lower reading for December. As well, the Federal Reserve will release the minutes of its most recent policy meeting. There are no Japanese releases on Wednesday.

The markets are awaiting the ADP Non-Farm Payrolls later on Wednesday, which precedes Unemployment Claims on Thursday and the official NFP release on Friday. NFP can impact the next Fed decision, after 2013 ended with QE tapering. While the taper was only $10 billion, the Fed did indeed change policy, and this could have a significant positive impact on the US dollar. With another taper in January a strong possibility, every employment release will be under the market microscope and could impact on the currency markets.

As expected, the US Senate confirmed Susan Yellen as chair of the Federal Reserve by a wide margin on Monday. Yellen becomes the first woman to head the powerful central bank. She has been a strong supporter of outgoing chair Bernard Bernanke, who lowered interest rates and implemented a QE program in order to boost a struggling US economy. The Fed has now started to trim the $85 billion QE scheme, with a $10 billion cut as of January. We could see another taper at the next Fed policy meeting in late January. Yellen takes over the helm on February 1, and will chair her first policy meeting in March.

What can we expect in 2014? The BOJ is forecasting economic growth this year while inflation is anticipated to reach 1.3%.  However, there is concern that these predictions may not be met, given the sales tax increase set for April, which will be raised to 8%, up from the current 5%. We can expect the BOJ to continue its aggressive monetary stance, given that one of its primary goals is to reach its inflation target of 2%. As for the struggling Japanese yen, some analysts are predicting the USD/JPY could hit as high as 120 in 2014.

USD/JPY for Wednesday, January 8, 2014

USD/JPY January 8 at 13:00 GMT

USD/JPY 104.81 H: 105.12 L: 104.66

USD/JPY Technical

• USD/JPY is steady in Wednesday trading. The pair touched a high of 105.13 early in the European session but has dropped back below the 105 line.
• 104.17 continues to provide support. This is followed by a support line at 103.30.
• On the upside, there is resistance at 105.70. This line has some breathing room as the pair trades at lower levels. 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 unchanged on Wednesday. This is consistent with what we are seeing from the pair, which is not showing much activity. Long positions have a majority in the USD/JPY ratio, indicating trader bias towards the dollar breaking out and moving higher.

The pair is listless in Wednesday trading. We could see some volatility in the North American session, as the US releases the ADP Non-Farm Payrolls and the Federal Reserve minutes later in the day.

USD/JPY Fundamentals

• 13:15 US ADP Non-Farm Employment Rate. Estimate 199K.
• 15:30 US Crude Oil Inventories. Estimate -1.6M.
• 18:01 US 10-year Bond Auction.
• 19:00 US FOMC Meeting Minutes.
• 20:00 US Consumer Credit. Estimate 14.8B.

*Key releases are highlighted in bold

*All release times are GMT