USD/JPY Forecast Jan. 19-23 2015

The Japanese yen posted strong gains, as USD/JPY  dropped about 100 points. The pair  closed the week at 117.47.  There are  six  events this week, highlighted by the BOJ Monetary Policy Statement.  Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.

The yen was helped by a large current account surplus, and Core Machinery Orders bounced back with a gain. In the US, last week’s data was unimpressive, as manufacturing and employment numbers disappointed. On the bright side, consumer confidence continued to push higher.

USD/JPY graph with support and resistance lines on it:

1. Revised Industrial Production: Sunday, 23:30. This release tends to fluctuate, but recent estimates have been close to the actual readings. In the October release, the indicator posted a gain of 0.4%, slightly higher than the forecast of 0.2%.
2. Consumer Confidence: Monday, 00:00.  Consumer  Confidence is closely  linked to consumer spending,  a key  component of  economic growth. The indicator has dropped for four straight readings, pointing to weakening consumer confidence. The November release  fell to 37.7 points, well below the estimate of 39.6 points.   The markets are  expecting  a stronger  reading  in December, with an estimate of 38.6 points.
3. BOJ Monetary Policy Statement:  Tuesday, Tentative.  This is the major event of the week. The BOJ recently increased its monetary stimulus and the central bank could take further action if the Japanese economy does not improve. The statement should be treated as a market-mover by traders.
4. All Industries Activity:  Tuesday, 23:30. The indicator points to weakness in the business sector, as the indicator has posted four declines in the past five readings. The October reading came in at -0.1%, shy of the estimate of 0.2%. The November  estimate stands at 0.1%.
5. BOJ Monthly Report:  Thursday, 00:00. This  release contains the BOJ’s analysis of current and future economic conditions. It is a minor event, unlikely to have much effect on the direction of USD/JPY.
6. Flash Manufacturing PMI:  Thursday, 20:35. The PMI has been above the 50-point line since April, pointing to ongoing expansion in the manufacturing sector. The indicator has been steady, posting two straight readings of 52.1 points.

* All times are GMT

USD/JPY Technical Analysis

Dollar/yen started the week at 118.50.  The pair  quickly rose  to a  high of 119.34, but then  reversed directions and  dropped all the way to 115.82, testing support at 116.82 (discussed last week). The pair then moved upwards  and closed  the  week at 117.47.

Live chart of USD/JPY: [do action=”tradingviews” pair=”USDJPY” interval=”60″/]

Technical lines from top to bottom:

124.16 marked the start of a yen rally  in June 2007, which saw  USD/JPY drop to the 96 level.

122.19 remains a strong resistance line which has held firm since July 2007. The next resistance line is  121.39.

119.88 held firm as the pair posted slight gains early in the week.

117.94 has switched to a resistance role as the yen posted strong gains.

116.82 was breached in support but recovered.  It  is currently an immediate support level. 116.02 is the  nextline of support.

114.65  has  remained intact since December 2007, when the yen  posted a  strong rally which saw USD/JPY drop below the 96 line.

113.17 is the final support level for now.

I am  bullish  on  USD/JPY

The yen had enjoyed two strong weeks, so we could see an upward  correction by the pair. Market sentiment remains bullish on the US economy, which is in much better shape than that of Japan. Monetary divergence  could weigh on the yen, as the Fed mulls the timing of a rate hike, while the BOJ looks at injecting more stimulus into the sluggish economy.

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