The Japanese yen eventually remained unchanged in a week that saw classical range trading and regular risk on / risk off movements. Current Account and the rate decision are the Major events this week. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.
Last week, weak data was released with an unexpected drop of 0.1% in Prelim Industrial Production, A smaller than predicted rise of 1.6% in Household Spending and a disappointing decline of 0.6% in Average Cash Earnings. Japan’s economy is not picking up as the BOJ anticipated. Will this trend continue?
Updates: Leading Indicators fell to an eight-month low, dropping to 92.6%. The yen continues to strengthen, as USD/JPY was trading at 0.7831. Current Account will be released later on Tuesday. The markets are expecting a much stronger reading than the July release of JPY 0.28 trillion. The yen lost ground against the dollar, as USD/JPY was trading at 0.7842. Current Account looked sharp, jumping to JPY 0.77 trillion, slightly above the estimate of 0.75T. Bank Lending posted a 0.7% gain, identical to the July reading. Economy Watchers Sentiment moved upwards to 44.2 points, slightly below the forecast of 44.5. points. The yen edged higher, as USD/JPY was trading at 78.31. M2 Money Stock remained at 2.2%, just below the forecast of 2.3%. As expected, the BOJ maintained its key interest rate at 0%-0.10%. In an follow-up statement, the BOJ took note that the Japanese economy was still weak, and stated there were currently no plans to provide monetary stimulus. Core Machinery Orders rebounded, but still fell well below the market estimate. The indicator jumped 5.6%, well below the estimate of 11.1%. Household Confidence hit a five-month low. The indicator posted a reading of 39.7 points, below the market forecast of 40.8 points. Preliminary Machine Tool Orders declined for the third straight month, dropping by 6.8%. The yen has gained ground, as USD/JPY was trading at 78.36.
- Current Account: Tuesday, 23:50. Japan’s adjusted current account surplus continued to contract in May reaching 280 billion yen from 290 billion yen in the previous month amid the ongoing global slowdown. On a yearly base current account surplus dropped 62.6% from a year earlier to 215.1 billion yen. This was the 15th consecutive decline. Nevertheless Current account surplus is not expected to turn to deficit anywhere soon. adjusted current account surplus is expected to increase to 750 billion yen.
- Core Machinery Orders: Wednesday, 23:50.Japan’s core machinery orders disappointed with a sharp fall of 14.8% in May following 5.7% gain in April. A much smaller decline of 2.4% was predicted by analysts. This weak reading indicates growth in capital expenditure will continue to be slow amid global economic conditions. The Cabinet Office, lowered its assessment of machinery orders due to a sharp drop in orders. A climb of 11.3% is anticipated this time.
- Rate decision: Thursday. The Bank of Japan, maintained its overnight call rate between 0-0.1% on its last meeting.Japan’s domestic economy is slowly recovering, but global economic outlook remains a dark cloud hovering overJapan’s struggling economy. Deflation remains a main concern as the BOJ adjusted its asset purchase program to help fightJapan’s sore spot. No change in rates is expected.
- Economy Watchers Sentiment; Thursday, 5:00. Business confidence among service providers in Japan deteriorated further in June dropping to 43.8 from47.2 in May. This was the second month below the 50 point line indicating pessimism. Some analysts are worried about the government’s plan to raise the consumption tax starting in 2014, which could lead to further decline in household spending and business investment. A small rise to 44.5 is forecasted.
- CGPI : Thursday, 23:50.Japan’s corporate goods price index dropped 1.3% on a yearly base in June, amid a decline in fuel prices, chemicals and nonferrous metals. Economists expected a lower drop of 0.9%. This weak figure indicated deflation is here to stay for the time being. A further decline of 1.5% is expected now.
- Revised Industrial Production: Friday, 4:30. The revised seasonally adjusted report was more disappointing than the preliminary reading released earlier showing a 3.4% decline in May compared to 3.1% drop in April. This is the biggest drop in a year’s time, indicating industrial production is contracting. A drop of 0.1% is anticipated.
USD/JPY Technical Analysis
$/yen started the week with a slide and even temporarily breached the 78 line (mentioned last week). It then recovered, but didn’t go too far, finally ending at 78.46.
Technical lines from top to bottom
84 was the peak reached in March and remains a tough spot. 83.20 provided support when the pair traded on high ground and it then switched to resistance.
82.87 is a veteran line – that’s where the BOJ intervened for the first time back in 2010. 81.80 capped the pair in April.
81.43 is stronger after serving as resistance for a recovery attempt. 80.60 provided support for the pair around the same time, and served as a bouncing spot for the next moves. It proved its strength as resistance in June 2012, more than once.
80.20 separated ranges in May 2012 and remains another barrier after 80 on the upside. The round number of 80 is psychologically important, even though it was crossed several times in recent months. It is stronger now.
79.70 was a cap was seen in June 2012. It proved its strength as resistance once again in July 2012. 79.10 was a cushion for the pair several times in June and also back in May 2012. This role continues in July.
78.68 returns to the scene after capping a recovery attempt at the end of July and providing support earlier. Its role is now stronger than beforehand. The round number of 78 is minor support.
77.50 was the bottom border of a range the pair had at the end of 2011. It is followed by 77, which is only minor support.
76.60 was a cushion for the pair at the beginning of the year and is rather strong. 76.26 is the next line on the downside after working as a support quite some time ago.
I am bullish on USD/JPY.
The better than expected jobs report in the US supports the dollar, and the improvement in Europe certainly lowers the risk flows that the yen enjoys so much. Together with a return of deflation and intervention, there isn’t much room for falls in USD/JPY.
- 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.