Dollar/yen traded in a wide range, and eventually closed lower, riding on the greenback’s retreat, more than any other currency. Current Account and the rate decision are the highlight of this week. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.
The Tankan index of large manufacturers’ sentiment was unchanged in the first quarter with a reading of -4, suggesting manufacturers are still concerned about the yen’s strength and global economic slowdown. Meanwhile Japanese large non-manufacturing firms increased for the third consecutive month to 5 from 4 in the previous quarter. However, the yen gained a lot of strength from the weak US Non-Farm Payrolls.
Updates: USD/JPY is down, trading at 81.31. Current Account surprised the markets, posting a reading of 0.85T. This was the best reading since last November. Economy Watchers Sentiment came in at 51.8, well above the market forecast. The reading represents an eight-month high for the indicator. As expected, the central bank kept the key interest rate below 0.10%. Prelim Machine Tool Orders rose 2.4%, a three-month high. USD/JPY is trading at 81.11. Core Machinery Orders was up this month, posting an increase of 4.8%. The strong performance took the markets by surprise, as the forecast called for a 0.7% decrease. Bank Lending rose 0.8%, the indicator’s best reading since November 2009. Since posting a flat reading of 0.0% in November 2011, the indicator has been on a slow, but steady upswing. JPY/USD dropped below the 81 level, as the pair is trading at 80.85. CGPI remained the same as the March reading, at 0.6%. M2 Money Stock rose 3%, above the market forecast of 2.8%. JPY/USD is steady, trading at 80.98.
USD/JPY daily chart with support and resistance lines on it. Click to enlarge:
- Current Account: Sunday, 23:50.Japan’s adjusted Current Account in January showed a reduced surplus of Y116bn following Y776bn seasonally adjusted surplus in December. January’s data tends to be volatile due to the changing timing of the Chinese New Year. Current account surplus is expected to widen reaching Y66.0bn.
- Economy Watchers Sentiment: Monday, 5:00. The Economy Watchers’ Survey rose to45.9 in February from44.1 in January. The outlook prospects came to a five year high reaching50.1 a good sign for the Japanese economy. The Government also claims the economy is “picking up gradually” A further rise to 46.6 is expected now.
- Rate decision: Tuesday. At the last monetary policy meeting, the Bank of Japan decided to maintain the benchmark interest rate between 0-0.1%, and kept the existing amount of asset purchases in line with expectations. The BOJ expects Japanese economy to gradually return to a moderate recovery track. Governor Masaaki Shirakawa announced that the central bank will continue to fight deflation but expect the private sector and the Government to join forces in this important task. No change is expected in monetary policy and interest rate.
- Core Machinery Orders: Tuesday, 23:50.Japan’s core machinery orders beat expectations in January by climbing 3.4% after dropping 7.1% in February a sign of an economic recovery due to the country’s tsunami-battered northeast coast rebuilding activity. Data shows corporate capital spending is growing and the yen has eased enabling a moderate recovery. A drop of 0.7% is expected now.
- BOJ Monthly Report: Wednesday, 5:00. The BOJ announced in March that industrial output increased is expected to continue growing in the second quarter due to reconstruction activity. The auto industry expanded as well complying with growing demand. The yen shows signs of depreciation excellent for exports andJapan’s economy is on the verge of a growth trend.
- CGPI: Wednesday, 23:50. Japan’s corporate goods price index increased 0.6% on a yearly base in February after 0.5% rise in January. This reading was in line with expectations due to higher costs of energy and commodities.0.4%
- Monetary Policy Meeting Minutes: Thursday, 23:50. The minutes of the last monetary policy meeting reveal that the BOJ decided to expand the scale of asset purchases, and set the inflationtarget of 1% also deciding to take a amore active role to end deflation.
* All times are GMT
USD/JPY Technical Analysis
$/yen started the week with a false break above the 82.87 line (mentioned last week). It then changed direction. After an initial dip and recovery, the pair gradually dropped, closing with a sharp drop to 81.62.
Technical lines from top to bottom
We move to lower ground. 86.27 was a distinct line of support and resistance in the summer of 2010 and is the next line if 85.50 is crossed. 85.50 is a key line. This was a peak after a strong move in March 2011. It held for more than one day.
84.50 capped the pair at the end of 2010 and at the beginning of 2011 and is a bit weaker now. An important line of resistance is found at 84, which capped the pair back in February 2011 and provided some resistance in March 2012. It proved its strength for a second week in a row.
It is closely followed by the minor line of 83.50, which was a glass ceiling for the pair during March 2012. 82.87 was the line where the BOJ intervened in September 2010, and also worked in both directions afterwards. It worked as support when the pair traded higher and remains a cap.
81.80 is an update of the 82 line. It served as support for the pair at the end of March 2012 and is now strong support. Close by, 81.30 was the bottom the pair reached in in April 2012, and also resistance in February.
80.60 provided support for the pair around the same time, and served as a bouncing spot for the next moves. The round number of 80, which provided strong support in June, is the next line, and it is of high importance.
79.50, was a battleground on the way up. This is the line that was reached after the last non-stealth intervention. 78.30 capped a second recovery attempt in November, after the intervention and had an important role earlier as well, working as support. After it was broken, the rally intensified. It now switches to support.
I am neutral on USD/JPY.
The soft US Non-Farm Payrolls sent safe haven flows to the yen, at the wake of the new Japanese fiscal year. On the other hand, there are 5 reasons this may be only temporary, and Japan certainly has problems of its own, including a major shift in its energy consumption.
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 the New Zealand Dollar (kiwi), read the NZD forecast.
- For USD/CAD (loonie), check out the Canadian dollar forecast
- For the Swiss Franc, see the USD/CHF forecast.
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