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USD/JPY Outlook March 25-29

Dollar/yen suffered from a second consecutive week of falls. Is it getting comfortable in the range, or can we expect a move higher anytime soon? Retail sales, Household spending and inflation data are the major events this week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Haruhiko Kuroda began working as the governor of the BOJ, but hasn’t announced any steps quite yet. In the US, Ben Bernanke and his colleagues made no change to policy, and left the dollar weakening against most currencies, apart from the euro. In Europe, the crisis in Cyprus also contributed to a stronger yen, even though the “safe haven” flows are weaker than beforehand.

Updates: CSPI posted a modest 0.1% gain. This was an important development, as  the business index  points to inflation for the first time since June 2012. BOJ Governor Hurahiko  Kuroda testified before the Japanese parliament on Tuesday. Kuroda stated that the BOJ was considering eliminating a rule which limits the amount of government bonds that the BOJ is allowed to buy. Japanese Retail Sales will be released later on Wednesday. USD/JPY has edged downwards, and was trading at 94.25. Retail Sales was weak, declining by 2.3%. This was way   below the estimate of 0.9%. The markets are waiting for a host of releases later on Thursday, including Tokyo Core CPI and Household Spending. USD/JPY is steady, as the pair was trading at 94.30.

USD/JPY  daily graph with support and resistance lines on it. Click to enlarge:Dollar yen technical analysis for trading forex with USD JPY

  1. CSPI  : Monday, 23:50. Japan’s corporate service price index declined 0.2% on yearly bases in January, down for the eighth month, following a 0.4% drop in the previous month. However the pace of decline improved in recent months indicating a gradual recovery process. CSPI is expected to remain weak in coming months since firms remain cautious about raising service prices while the weaker yen and higher energy prices will push up costs. A flat reading is expected this time.
  2. Retail Sales: Monday, 23:50. Japan’s retail sales posted the first year-on-year decline in three months in January, down 1.1%, following a 0.3% gain in December. The drop was due to snow storms and termination of subsidies for buying low-emission vehicles. However the weakening yen and the government’s plan to increase public works spending are expected to boost consumer spending in the coming months except for car sales.  A rise of 0.9% is expected now.
  3. Manufacturing PMI: Thursday, 23:15. Japanese manufacturing activity continued to decline in February yet at the slower pace reaching a seasonally adjusted 48.5 from 47.7 in January. The first quarter is expected to remain in contraction but a modest growth is expected in the second quarter.
  4.  Household Spending: Thursday, 23:30. Household spending in Japan surged 2.4%, on a yearly base, in January, following a 0.7% drop in December, marking the first year-on-year rise in two months. The data also revealed that salaries rose a real 1.1% on year to Y433,858 in January, marking the sixth straight gain. However household spending is expected to remain sluggish, since recovery in wages is still uncertain.  Another gain of 0.4% is forecasted.
  5. Tokyo Core CPI: Thursday, 23:30. Core consumer prices in Tokyo, available a month before the nationwide data, declined 0.6 percent in the year in February and the National Core CPI dropped 0.2% in January, despite recent shifts in the BOJ management and the more aggressive role it undertook to fight deflation. However small improvements in the job market and rising consumer spending are the first signs of a modest recovery. Tokyo CPI is expected to decline 0.6%, while the National Core CPI is expected to drop 0.4%.
  6. Prelim Industrial Production: Thursday, 23:50. Japan’s industrial production increased 1.0% in January, following a 2.5% increase in December. This was the second straight climb indicating an improvement in economic outlook. Further easing measures are expected in April by the BOJ new leadership team, announced by parliament. A gain of 2.6% is forecasted.
  7. Housing Starts: Friday, 5:00. Housing starts in Japan edged up 5.0% in January from a year earlier, rising for the fifth straight month, after posting a10.0% increase in December. Improved consumer sentiment and rising demand ahead of planned sales tax hikes boosted figures in the housing market. A decline of -1.0% is predicted now.

*All times are GMT.

USD/JPY  Technical Analysis

Dollar/ ¥ began the week with a sharp drop on the crisis in Cyprus, and followed through with a recovery, rising above 96 at its best. A second wave saw the pair lose 95 once again, but the pair eventually closed just above the 94.46 line (mentioned last week).

Technical lines from top to bottom

Looking above 100, we find the 101.44 line, which was the post crisis high seen in April 2009. The obvious number below is the very round number of 100.

98.90 capped the pair in June 2009 and serves as minor resistance. A stronger line is the  97.80 line, which was a peak back in 2009. The new 2013 peak of 96.71 is the next line.

95.88 now serves as a pivotal line within the new high range. The round number of 95 was breached, and now works as support.

The previous February 2013 peak of 94.40 should be noted. A second move towards that line in February fell short, but the pair made it in March.

93.84 was an initial peak for the pair as it climbed higher and has served as a cap afterwards. 92.95 was an earlier resistance line, and later served as support.

92.12 was a peak in the past, and provides some support, as seen in February 2013. The line is weaker now. 91.20, which capped the pair very temporarily on its way up in January 2013, is a support line and is now stronger.

The ultimate support line for now is 90 – a target marked by many analysts and a round number. This line remains close after the break.  Just below, 89.67 capped the pair for several days in January 2013 and is now minor support.

Below, 89.10 was a peak in the summer of 2010, before the pair began descending and is now support.  88.40 is the peak of January 2013 and is a strong support line.

Another recent technical view:  USD/JPY Hits New Long-Term High for Potential Uptrend Continuation  –  by James Chen

I am neutral on USD/JPY

It seems that the next big move for the yen will come on Kuroda’s first BOJ rate meeting on April 4th. We could see some range trading until then, but any big news from Europe could still rock the pair.

More:  USD/JPY Likely to trade in 92-96 range in a much less trended market

Further reading:

Anat Dror

Anat Dror

Anat Dror Senior Writer I conceptualize, design and create multi-lingual websites. Apart from the technical work, my projects usually consist of writing content for these sites in English, French and Hebrew. In the past, I have built, managed and marketed an e-learning center for language studies, including moderating a live community of students. I've also worked as a community organizer