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The  Japanese yen  retreated as the US dollar enjoyed wide gains across the board. Will the pair make a meaningful break out of the range? Inflation figures are the highlights of the week.  Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.

BOJ governor Kuroda made it clear that monetary stimulus will continue. The question remains: will the central bank introduce a new blitz to counter the sales tax hike effect? The level of inflation will make a difference. In the US, data has been generally positive, with better than expected jobless claims as well as accelerated retail sales. Let’s start.

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

USDJPY Technical analysis April 21 25 2014 fundamental outlook sentiment forex trading dollar yen

  1. Trade Balance: Sunday, 23:50. Japan is suffering from a trade deficit that has its roots in the natural disaster of March 2011. The need to import energy in order to compensate for the lower power production of nuclear energy weighs. In February, Japan saw an adjusted deficit of 1.133 trillion yen and a total deficit of around 800 billion. Similar numbers are expected now. Both exports and imports grew nicely.
  2. Leading Economic Index: Tuesday, 5:00. This compound indicator, comprised of 12 internal ones has been on the rise and stood on 113.1 points in January. A slight drop is expected for February.
  3. CSPI: Wednesday, 23:50. The corporate service price index serves as another measure of inflation. After rising by 0.7% in February, a smaller rise is likely in March.
  4. Foreign bond investment: Wednesday, 23:50. Investment in Japanese bonds is a volatile number, but can still move markets. After a positive number of 115 billion yen, a negative figure is expected now.
  5. Inflation data: Thursday, 23:30. Japan publishes a wide array of inflation figures. The national y/y CPI stood on 1.5% in February and is expected to move higher. Core CPI is at 0.8% and will likely edge up towards 1%. The Tokyo CPI is already for April and may have a stronger effect. CPI stood on 1.3% and core CPI at 0.4% in the Japanese capital. Also note the ex-Fresh food numbers if they surprise.
  6. All Industries Activity: Friday, 4:30. In January, this minor indicator surprised with a rise of 1%, standing out from previous smaller moves. A more moderate rise is expected now in the value of products and services bought by businesses.

* All times are GMT.

USD/JPY Technical Analysis

Dollar/yen started the week with a rise from the lows and made sharper move above the 102.15 line (mentioned last week). It then continued higher and made itself comfortable in the well known range.

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. 102.15 capped the pair during April 2014 and now serves as a minor line within the range.

101.20  provided strong support for the pair during March 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.

Moderate uptrend support

We can observe a moderate uptrend support line (thick black line) accompanying the pair since early March.

I remain bullish on USD/JPY

The Bank of Japan seems serious in its efforts to push inflation higher and in its readiness to act. A slowdown in the battle against deflation in April in Tokyo as a result of the sales tax hike could lead to further action. In the US, more evidence is piling up to the “spring bounce”. The taper train is firmly on track.


Further reading: