USD/JPY Forecast May 23-27

USD/JPY  had an uneventful week and closed almost unchanged at 110.15.  This week’s highlight is Tokyo Core CPI. Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.

The Fed meeting minutes were surprisingly hawkish,  putting a June rate hike firmly on the table.  US unemployment numbers were within expectations and housing numbers beat the estimate. Japanese Preliminary GDP posted a gain of 0.4% in Q1,  following  declines in the past three quarters.

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

 

1. Retail Sales: Sunday, 23:50. Japan’s trade surplus continues to improve and hit JPY 0.28 trillion in March. However, this fell short of the estimate of JPY 0.45 trillion. Little change is expected in the April release, with an estimate of JPY 0.27 trillion.
2. Household Spending: Monday, 23:30. The indicator has slipped below the 50-point level over the past two releases, which indicates contraction in the manufacturing sector. The forecast for the May release stands at 48.3 points.
3. Preliminary Industrial Production: Monday, 23:50.  The indicator has been struggling, posting three releases in the past four months. The markets are expecting a positive turnaround, with an estimate of +0.7%.
4. Housing Starts: Tuesday, 5:00. This indicator measures inflation in the corporate sector. The index has been quite steady, posting four gains of 0.2% in the past five months. Another gain of 0.2% is expected  in the April reading.
5. Capital Spending: Thursday, 23:50. This is the key event of the week. Tokyo Core CPI is the most important inflation indicator, and an unexpected reading can have a strong impact on the direction of JPY/USD.
6. Final Manufacturing PMI: Wednesday, 2:00.  This minor event has been very steady, with three straight readings of 1.1%. The forecast for the upcoming reading stands at 1.0%.
7. BoJ Core CPI: Friday, 5:00.
8. BoJ Core CPI: Friday, 5:00.
9. BoJ Core CPI: Friday, 5:00.
10. BoJ Core CPI: Friday, 5:00.
11. BoJ Core CPI: Friday, 5:00.

* All times are GMT

USD/JPY Technical Analysis

USD/JPY opened the week at 108.66  and quickly touched a  low of 108.62. The pair then reversed directions and  climbed to a high of 110.58, as 109.94 held firm in resistance (discussed last week). USD/JPY closed the week at 109.89.

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

Technical lines from top to bottom:

We start with  resistance at  113.51.

112.41 was a cushion in the first half of 2014.

111.74 is next.

110.94  was an important support level in  February.

109.90 was a cap for much of April.

108.95 was a cushion in May 2006. It is an immediate support line.

107.39 has strengthened in support following gains by USD/JPY this week.

106.25 marked the start of a dollar rally in October 2014 which saw USD/JPY move above the 121 line.

105.44 is the final support line for now.

I am bullish on USD/JPY

Weak growth and inflation levels may force the BoJ to adopt further easing in June or July, which would weaken the yen. With a June rate hike in the US firmly on the table, monetary divergence will continue to weigh on the Japanese currency.

In our latest podcast we examine the road to a June hike (or not)

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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 the Japanese yen, read the USD/JPY forecast.
• For GBP/USD (cable), look into the British Pound forecast.
• For the Canadian dollar (loonie), check out the Canadian dollar forecast.
• For the kiwi, see the NZD/USD forecast