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USD/JPY Forecast 31 May 2013

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Bank Of Japan Stands Ready to Prevent Bond Market Volatility

Our daily forecast today will present binary options traders with a view on the moves in USD/JPY in the next hours. Key drivers behind the moves today were mainly news out of the US following another turbulent Nikkei session which gave perspective that 5% moves in that index are something quite normal.

The pair opened in New York around 101.75 – a rally from late Asian lows around 100.45. The rally was helped strongly by reports that the Japanese Government Pension fund would be considering to divest its portfolio into Japanese Stocks – hence the rate spiked up from 100.85 to 101.80 rather quickly.

Lower than expected Q1 GDP print at 2.4%

Over the next couple of hours we did bump into the lower than expected Q1 GDP print at 2.4% and higher than expected jobless claims reporting a rise in claims to 354k, with 340k expected. Pending home sales were reported weaker than expected – up 10.3% y/y with consensus expectatioin landing at 12.6%. The number was still better than previous month, but not enough to warrant another leg higher for the USD.

The Japanese Central Bank governor Haruhiko Kuroda sais on Thursday that the BOJ will do everything in its power to reduce volatility in the Japanese Government Bonds market and push long term yileds lower as a result. He stated that the Bank Of Japan will not tolerate increased volatility and results from the expansive monetary policy will grow better as more government debt is purchased.

Whilst Japanese Government bond yields plunged after the radical BOJ policy was announced in the beginning of April they have been spiking higher in recent sessions, reaching a 13 month high mainly due to the fact that the Fed is likely to taper off its government bond purchases.

Looking at the charts we are observing a strong support level around 100.40-45. This would be the first point where we will try to purchase calls on the pair. A break lower however would expose 100.00 as pivotal support as it is a very important round figure.

Should after the test on the downside of 100.40-45 the rate proves to be solidly supported we would expect a steady return towards the 101.10-20 area. Should that be breached expect further gains towards the next figure and todays highs around 101.80.

Event risks overnight are focused on the late Asian session with Japan reporting on vehicle production, housing starts and construction orders – all set to be released at 05:00 GMT.

The European calendar is heavy with German Retail Sales around 06:00 GMT, followed by Spanish current account data and Italian Unemployment at 08:00. Be vigilant in these noisy markets and good luck!

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