USD/JPY in focus post QE3

The US Federal Reserve (Fed) ended its quantitative easing programme as widely expected. The plug on the remaining US$15 billion per month was pulled from its bond buying programme, which started in September 2012 at $85 billion per month.

Japanese yen and US dollar sign
Source: Bloomberg

While the Fed stuck to its stance that interest rates would remain near zero for a ‘considerable time’, there were some rather hawkish cues from its policy statement.

One highlight was the committee’s more bullish view on the labour market, where it  reworded its statement to ‘underutilisation of labour resources is gradually diminishing’, from the more dovish phrase ‘significant underutilisation’.

Following the news, USD/JPY jumped sharply higher after the FOMC and is pushing a three-week high.

On a four-hour chart, USD/JPY is respecting an uptrend line. This bias will likely continue with more signs of economic fundamentals improving in the US.

Conversely, a softening Japanese economy will pull the yen in the opposite direction. Japan will be releasing a slew of figures covering jobs and inflation tomorrow (Friday 0730hr SGT), expectations are for a softer reading which should put pressure on its currency.

The 109.22 level from October 7 was the previous high and next resistance level that USD/JPY will likely edge towards. Any pullbacks near the support level of 108.20 will be attractive for an entry to go long. This could happen as traders take profit on the spike or any surprises from the Japanese macrodata over the next few days.

Click to enlarge

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.