USD/JPY Forecast July 21-25

USD/JPY  traded within the known ranges once again. Inflation numbers and the trade balance are in the limelight.  Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.

The Bank of Japan made no change in policy and left the yen hanging out there. Nevertheless, doubts creeping about the success of Abenomics raise the chance of further stimulus down the road. In the US, Yellen’s testimony  eventually helped the US dollar, but the yen was little affected. Geo politics then helped the yen: it is the downing of the Malaysian plane in Ukraine and the Israeli ground offensive in Gaza.

USD/JPY graph with support and resistance lines on it. Click to enlarge:

1. All Industries Activity: Tuesday, 4:30. This figure is a lagging one, as it comes nearly two months after the month has ended. Nevertheless, the data for May will be interesting as it is expected to show a rebound after the tax-hike related plunge seen in April of 4.3%. A rise of 0.7% is expected in the value of purchases made by  businesses.  
2. Trade Balance: Wednesday, 23:50. As Japan nears a resumption of activity in nuclear reactors, we will get a reminder of the economic effect that the closure had on them. After a deficit of 0.86 trillion yen in May, a slightly bigger deficit is predicted now: 1.11 trillion.
3. Flash Manufacturing PMI: Thursday, 1:35. Markit’s 400 strong survey is gaining traction. Manufacturing returned to growth territory in June with a final read of 51.5 points, above the 50 point mark separating growth from contraction. A similar figure is likely in the initial publication for July: 51.9 points.  
4. Inflation numbers: Thursday, 23:30. The main goal of the BOJ is to fight inflation and we are seeing some progress, even though the recent leap is directly related to the tax hike in April. The fresh figures for July from the capital Tokyo are likely to grab the headlines. They showed an annual rise in core prices of 2.8% for June. A similar number is expected: 2.7%. The national numbers for June are likely to slide from the 3.4% level seen in May to 3.3%. Note that without the effect of the tax hike, core inflation is still below 2% in Japan.

* All times are GMT

USD/JPY Technical Analysis

Dollar/yen began the week with a rise from the 101.20 line (mentioned last week) that provided support. Nevertheless, it didn’t go anywhere fast.

Live chart of USD/JPY:

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.  102.80  was a stubborn peak during February and is the top line of the current trading range.

In the narrower  range, 102.30 is weak resistance. 102.00  is a round number that supported the pair several times and is  now the  pivotal line  within the narrowing trading range. 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

The fears that the Japanese economic recovery cannot continue on its own are creeping in. Indeed, the “third arrow” of Premier Abe’s policies, structural reforms, is not in sight. On this background, the BOJ could come in handy and act to weaken the yen. On the other side of the Atlantic, the Fed is getting closer to an exit, and this is evident with the mention of a “stretched” valuations in certain sectors of the stock market. Regarding the geo-political flare ups, we can learn from the past that when the headlines move  elsewhere, the yen sells off.

More yen:  Long-Term Trend Line In Play For USDJPY

Further reading: