USD/JPY Outlook January 20-24

USD/JPY  showed some sharp movement in both directions last week, but  closed the week almost unchanged, at 104.26.  The upcoming week has just four  releases.  Here is an outlook on the major market-movers and an updated technical analysis for USD/JPY.

Japanese manufacturing numbers enjoyed a good week, as Preliminary Machine Tool Orders posted sharp gains and Core Machinery Orders improved in December. Over in the US,  the economy continues to move in the right direction. Unemployment Claims were solid, and Core Retail Sales and the Philly Fed Manufacturing easily beat their estimates. As well, a hawkish-sounding Fed helped the US dollar gain ground against its major rivals, including the yen.

Click to enlarge:  

1. Revised Industrial Production: Monday, 4:30. This indicator is released after Preliminary Industrial Production and  thus has less of an impact on USD/JPY. The indicator posted a respectable gain of 1.0% in November, surpassing the estimate of 0.5%. The markets are expecting a downturn in the upcoming release, with an estimate of a small gain of 0.1%.
2. Monetary Policy Statement: Wednesday, Tentative. The BOJ’s policy statement is the key event of the week. It is the primary tool employed by the central bank to communicate to the public its monetary policy, and its release can have a significant effect on the movement of USD/JPY. The policy statement will be followed by a press conference hosted by Governor Masaaki Shirakawa.
3. All Industries Activities:  Wednesday, 4:30. This manufacturing indicator is considered a minor event since much of the data has already been released. The indicator posted a decline of 0.2% last month, matching the forecast. The markets are expecting better news for the January release, with the estimate standing at 0.4%.
4. BOJ Monthly Report: Thursday, 5:00.   This report contains data that the BOJ board members used to determine the Bank’s monetary policy and view of current and future economic conditions. It is not expected to have a major impact on the direction of USD/JPY.

* All times are GMT.

USD/JPY Technical Analysis

We  begin with resistance at the round number of 110.00. This key level has remained intact since August 2008. This is followed by a resistance line at 109.18.

Next is 108.38. This line has remained intact since September 2008. At that time, USD/JPY was in a downward spiral which saw it drop below the 0.90 line.

106.66 has  held firm since November 2008.   This is followed by resistance at 105.70. This line  held firm as the pair climbed higher late in the week before retracting.

We find support level for the pair  at the round number of 104. This was a key line back in May 2008. For the second straight week, this line was breached but remains in place. It starts off the week as a weak support line.

102.50  continues to provide support. The line faced some pressure  early last  week as the yen gained strength before retracting. It marked the bottom of a dollar rally which started in early December, which saw  the yen climb above the 105 line.

101.44 was the post-crisis high seen in April 2009, and continues to provide strong support.

100.85 saw activity in July as the dollar showed strength against the yen. It is protecting the key level of 100.

The round number of 100 is  a key psychological level. It is providing USD/JPY with steady support.

The final support level for now is at 98.80. It has remained firm since early November, when the dollar began a rally which saw it climb above the 105 line.

I am  bullish on USD/JPY

The  Federal Reserve  has  finally started  to taper QE, and with further moves expected early in 2014, the yen could  remain under strong pressure.  As well, the Bank of Japan  is  moving full steam ahead with  its current aggressive monetary program, which could lead to further weakening of the Japanese currency. The yen  comes out of 2013 battered and bruised,  as the currency  lost about 17% of its value over the  course of  the year.  With many key US releases pointing upwards, we could see the yen’s downward spiral continue.