USD/JPY Fundamental Analysis for April 27, 2011

The USD/JPY pair dropped to reach a new one month low, the Japanese currency saw heavy demand since the beginning of the week supported by the absence of fundamentals from major economies and high volatility ahead of the FOMC and growth figures.

Despite the recent JPY strength, the USD managed to recovery against major currencies on the anticipation that the upcoming Fed meeting could witness an end for the second round of quantitative easing stimulus program.

On the other hand, the Japanese yen is losing ground versus other major currencies such as EUR and GBP, as carry trades strike the currency market decreasing demand on the JPY on interest rate bets.

For Wednesday, the day starts early in Japan with Retail Trade figures at 23:50 GMT (Tuesday) with expectations for a heavy drop in March by 5.4% following 0.8% which is merely normal following the March 11 devastating earthquake and tsunami.

From the US the data starts at 12:30 GMT with durable goods orders for March, where it’s expected to increase by 1.5% from the previous decline of 0.9%.

Nevertheless, the focus will be totally dedicated to the FOMC decision which already started to move the market since the begging of the week. At 16:30 GMT the market awaits the U.S. economy important data regarding the cash target for the month of April, where the expectations indicate the Federal Reserve will keep the rates unchanged steady at 0.25%.

The focus remains on Bernanke’s speech at 18:15 GMT and the new feds projections and the comments on the QE 2 program. The hints for the end of the program and the growth and inflation projections will affect the pair with focus on signals for hawkish bias that might support the dollar, or upbeat projections for growth that will support risk. Therefore, the outlook is highly volatile for tomorrow with focus on the Feds.

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