USD/JPY continued rising as Japanese data disappointed and US data shined. Can the pair finally settle on higher ground? The rate decision is the main event awaiting us in the first full week of August. Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.
Retail sales, industrial production and average cash earnings all disappointing, and the biggest surprise was a rise in unemployment to 3.7%, after a few better month. There is a growing feeling that the Japanese economy is running out of steam. Will the BOJ react? In the US, the excellent GDP growth report of +4% annualized in Q2 spilled fuel on the dollar’s fire. The not-too-hawkish message from the Fed could not stop the greenback.
[do action=”autoupdate” tag=”USDJPYUpdate”/]USD/JPY graph with support and resistance lines on it. Click to enlarge:
- Monetary Base: Sunday, 23:50. The monetary base is being targeted by the Bank of Japan since it announced its monetary blitz back in April 2013. After big year over year growth rates, we have seen some slowing down, with the level reaching 42.6% in June. A level closer to 40% is likely for July.
- Leading Indicators: Wednesday, 5:00. This composite index of 11 separate indicators has dropped to 105.7% in May, continuing its gradual descent from the highs. Another slide is probably on the cards now.
- Current Account: Thursday, 23:50. Japan’s trade balance suffers from a deficit for quite a long time, as an after-effect of the natural disaster of March 2011. However, the wider current account figure has flirted between surplus to a deficit for quite some time. After a good surplus of 0.38 trillion yen in May, a narrower one is likely now.
- Bank Lending: Thursday, 23:50. Lending encourages economic activity. Year over year growth stood on 2.3% back in June and will probably print a similar number now. The figure floated between 2.1% and 2.3% in recent months.
- Rate decision: Friday morning. With the current economic deterioration, the Bank of Japan is pressured to do more in order to boost the economy and reach its inflation target. However, it is unlikely that we will see more stimulus now, and this could be due to internal disagreements within the central bank. The accompanying press conference by BOJ governor Kuroda could however be somewhat more dovish than the actual statement.
- Economy Watchers Sentiment: Friday, 5:00. This survey of 2000 workers has shown pessimism in the past three months, with the score sitting at 47.7 in June. Another drop is expected in July. The 50 point mark separates optimism from pessimism.
* All times are GMT
USD/JPY Technical Analysis
Dollar/yen began the week under the 102 level (mentioned last week). Once the pair edged above this level, it didn’t look back. It then settled above the 102.74 line, but didn’t go too far.
Live chart of USD/JPY:
[do action=”tradingviews” pair=”USDJPY” interval=”60″/]Technical lines from top to bottom
104.80 capped the pair during January and with current ranges, looks distant. 104.10, the high of April 2014 is currently a minor line, but should be watched.
Below, 103.77 provided support for the pair in January and served as a clear separator of ranges. The round number of 103 has shown its strength in late July 2013.
102.70 was a stubborn peak during February and now switches to support. In the narrower range, 102.30 is weak support.
102.00 is a round number that supported the pair several times and remains and important line that the pair seemed to like very much – the “magnet”. 101.60 is weak support in the narrower range.
101.20 provided strong support for the pair during May 2014 and is the low line of support. 100.75 prevented the pair from falling lower during February and is the last backstop before the round number of 100.
100 is not just a round number but also worked as resistance several times in the past.
I remain bullish on USD/JPY
Everything seems to be working for the pair with a weakening Japanese economy and a strengthening US one. A hint about the potential for further action from the BOJ could set another leg in the advance of the pair, and perhaps we will be finally seeing the break out of the 102 “magnet” trading that has characterized the pair’s trading for too long.
Forex Analysis: USD/JPY Advances Sharply after U.S. GDP Data
Further reading:
- For a broad view of all the week’s major events worldwide, read the USD outlook.
- For EUR/USD, check out the Euro to Dollar forecast.
- For GBP/USD (cable), look into the British Pound forecast.
- For the Australian dollar (Aussie), check out the AUD to USD forecast.
- For USD/CAD (loonie), check out the Canadian dollar forecast.
- For the kiwi, see the NZDUSD forecast.
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