USD/JPY Forecast June 9-13

USD/JPY  moved up and returned to the previous range after breaking above downtrend resistance. The upcoming week features a rate decision which is only part of a busy calendar.  Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.

While the BOJ will probably refrain from more stimulus, it can certainly push for a lower yen. The US economy stayed away from surprises and saw a nice gain of 217K jobs, exactly as expected. Is the pair comfortable in this range or ready to move forward?

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

1. GDP: Sunday, 23:50. The final read of GDP growth for Q1 2014 is expected to confirm the strong 1.5% number reported in the initial publication. The strong growth rate was in anticipation to the sales tax hike in April, but also shows strength in the Japanese economy.
2. Current Account: Sunday, 23:50. Since the terrible  earthquake of March 2011, Japan imports more energy and this eventually tipped the current account balance to negative. After a deeper deficit of 0.78 trillion yen in March, a smaller deficit is expected for April.
3. Bank Lending: Sunday, 23:50. The  growth of bank lending is another measure of growth of the economy. Growth has been quite stable, with an annual rise of 2.1% in April. In May, the same figure is predicted.  
4. Consumer Confidence: Monday, 5:00. Around 5000 households are surveyed for this barometer of consumer confidence by the government. After a drop to 37 points in April, a small rise is expected in May.  
5. Economy Watchers Sentiment:  Monday, 5:00. This survey of workers plunged in April, probably due to the tax hike. It went from positive ground at 57.9 points to only 41.6. A bounce back up towards the 50 points line (separating optimism from pessimism) is expected now.
6. Tertiary Industry Activity: Monday, 23:50. The value of services bought by businesses rose by 2.4% in March, but this  was probably a one time boost before the tax hike in April. A significant fall is likely now.
7. M2 Money Stock: Monday, 23:50. The amount of money in circulation and in banks is another  peripheral measure of inflation. After growth rates of above 4% (year over year), both March and April have seen lower growth rates. A rise from last month’s 3.4% figure is expected for May.
8. BOJ Monthly Report: Tuesday, 5:00. The Bank of Japan publishes a monthly report discussing the current economic conditions, and this also provides hints about future policy. The BOJ is likely to assess  the impact of the sales tax on the economy.  
9. Machine Tool Orders: Tuesday, 6:00. This is the preliminary report for May by the  JMTBA. New orders of machine tools is at the back end of production and has future implications. After a very strong growth rate of 48.7% in April, a slower growth rate is likely now.  
10. BSI Manufacturing Index: Tuesday, 23:50. This official Business Survey Index by the BOJ has risen to 12.5 points in Q1 2014. A drop is likely in Q2. Note that the early nature of the publication makes this a highly important indicator.
11. Core Machinery Orders: Wednesday, 23:50. While this indicator is quite volatile, it tends to move markets quite strongly. A jump of 19.1% was recorded in March in private sector POs for machines. A big drop is likely in April.
12. Rate decision: Friday. No  change is expected from the Bank of Japan that meets quite frequently. However, the central bank has a lot of new data about the impact of the sales tax hike in April and could release interesting comments in the press conference.  If the BOJ expresses satisfaction about the reception of the tax,  expectations for more stimulus could be set aside. Otherwise, the door remains open. There is a good chance that the BOJ will leave the door open in order to keep the pressure on the yen.
13. Industrial Production: Friday, 4:30. This is the revised figure for April. The initial publication showed a big plunge of 2.5% in output. A bounce is likely now.

* All times are GMT

USD/JPY Technical Analysis

Dollar/yen started the week with a break above downtrend resistance (mentioned last week), and from there it  continued riding higher, testing the top of the previous range and remaining within it.

Technical lines from top to bottom

The top line is the peak seen in the turn of the year: 105.44. This was challenged several times. Below, 104.80 capped the pair during January.

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.

102.74  was a stubborn peak during February and is the top line of the current trading range. 102.00 is a round number that supported the pair several times and is the botom of the range.

101.30  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.

Broken downtrend resistance

Since peaking above 104 in early April, the pair was  capped by downtrend resistance, clearly formed in early May and  now easily left behind.

I remain  bullish  on USD/JPY

With lower European bond yields, the US treasuries seem more attractive and this indirectly helps dollar/yen. In addition, the BOJ cannot lift its leg from the stimulus pedal. While no action is needed, the mere  existence of an open door to action can certainly assist in pushing the yen lower.

Further reading: