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USD/JPY Forecast June 2-6

USD/JPY  ticked lower within the range. Will we see it take a new direction? A relatively wide array of economic indicators awaits us this week.  Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.

The effect of the sales tax hike was clearly seen with the release of retail sales: these  plunged by 4.4%, more than estimated and following a pre-hike shopping spree of 11% in March. Inflation numbers came in within  expectations and strengthen the notion that the BOJ will refrain from action. In the US, the past  looks worse with a bigger than expected contraction, while the present looks rosier.

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

USDJPY June 2 6 technical analysis fundamental outlook sentiment for dollar yen trading

  1. Capital Spending: Sunday, 23:50. This  quarterly measure serves as an indicator for future economic growth. In Q4 2014, growth disappointed with only 4%, even though it was the highest in many years.  A similar figure is  likely for Q1 2014.
  2. Final Manufacturing PMI: Monday, 1:35. Markit’s purchasing managers’ index  remained below the 50 point line separating growth from contraction for the second consecutive month according to the first release: 49.9 points. The figure will likely be confirmed now. A rise above 50 points will be received positively.
  3. Monetary Base: Monday, 23:50. Japan’s monetary base is on the rise since Kuroda announced his monetary blitz in April 2013. The  balance sheet of the BOJ is expanding at a double digit pace (year over year). After a slide to 48.5% in April, an even lower growth rate is due now.
  4. Average Cash Earnings: Tuesday, 1:30. The Japanese government wants companies to raise wages in order to stimulate the economy. After a y/y rise of 0.7% in  March, a drop is expected in April – the month when the sales tax hike came into effect.
  5. Leading Indicators: Friday, 5:00. 11 economic indicator build up the number, which has surprised to the upside in March with 107.1%. For April, a drop is predicted, yet again due to the tax.

* All times are GMT

USD/JPY Technical Analysis

Dollar/yen began the week capped under the round 102 line (mentioned last week). A move above this line proved short lived.

Technical lines from top to bottom

The top line is the peak seen in the turn of the year: 105.44. This was challenged several times. Below, 104.80 capped the pair during January.

104.10, the high of April 2014 is currently a minor line, but should be watched.  Below, 103.77 provided support for the pair in January and served as a clear separator of ranges.

102.74  was a stubborn peak during February and is the top line of the current trading range. 102.00 is a round number that supported the pair several times and is the botom of the range.

101.30  provided strong support for the pair during May  2014 and is the low line of support. 100.75 prevented the pair from falling lower during February and is the last backstop before the round number of 100.

100 is not just a round number but also worked as resistance several times in the past.

Downtrend resistance

Since peaking above 104 in early April, the pair is capped by downtrend resistance, clearly formed in early May and tested once again now.

I am  bullish  on USD/JPY

The Bank of Japan may be reluctant to act,but it will probably not allow the yen to strengthen. In addition, the improving conditions in the US economy support a gradual rise of the pair, despite low US bond yields.

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Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.