USD/JPY slipped lower mostly due to geopolitics, and showed that the 102 “magnet” is alive and kicking. What’s next for the pair? GDP is the main event in a busy week. Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.
Sanctions from Russia, a flare up in Iraq and a breakdown of the Gaza crisis all darkened the clouds over the globe and in times of trouble, the yen gains. The Bank of Japan refrained from any meaningful action despite worsening economic conditions. The GPIF wealth fund is on the verge of making changes to its investment policy, and this could impact the yen. Japan saw a small current account surplus, as expected. In the US, data remained positive as we’ve seen strength in the services sector as well as yet another impressive jobless claims number.Updates:
USD/JPY graph with support and resistance lines on it. Click to enlarge:
- Tertiary Industry Activity: Sunday, 23:50. This measure of the consumption of services has disappointed in the past two months. In May, it rose by only 0.9%, weaker than expected. A modest rise of 0.2% is expected now.
- M2 Money Stock: Sunday, 23:50. This is yet another measure of inflation, checking the amount of money in circulation. After a year over year growth of 3% seen in June, the same level of year over year growth is expected in July.
- Consumer Confidence: Monday, 5:00. Consumer confidence in this 5000 strong survey is on the rise after hitting a bottom in April, the month of the sales tax hike, when it hit 37 points. Another advance from 41.1 to 42.3 points is expected now.
- BOJ Monthly Report: The Bank of Japan releases a monthly assessment of the economy, including its inflation target and growth. It will be interesting to see how the BOJ sees growth in that consists of the GDP number. Will we get a hint?
- Machine Tool Orders: This initial estimation of orders at the back end of factories has seen a y/y rise of 34.1 % in June, and a somewhat slower level is expected in July.
- PPI: Monday, 23:50. Producer prices serve as a secondary measure of inflation, as they measure the level before the consumers. The y/y numbers reflect the sales tax hike since July, as they jumped from 1.7% to 4.1%. The most recent figure for June showed 4.6%, and July’s number is likely to see a slide to 4.4%.
- Industrial Production: Tuesday, 4:30. This is the revised number for June. The initial publication showed a rise of 0.5%, after a big slide in May, of 2.8%. The not-too-impressing rebound figure will likely be confirmed now.
- GDP: Tuesday, 23:50. This is the initial report for the second quarter, the one that began with the sales tax hike: from 5% to 8%. So, it is expected to reflect a significant drop in output: a drop of 1.7% after a strong growth rate of 1.6% in Q1. This will be closely watched by all market participants.
- Monetary Policy Meeting Minutes: Tuesday, 23:50. The revelation of the meeting minutes often provides hints about the thinking of the various members. However, these are not the minutes from the most recent meeting but rather from the previous one. It will be interesting to see if the central bank expressed worries.
- Core Machinery Orders: Wednesday, 23:50. This figure is quite volatile, yet it still reflects the undercurrents in the economy. The orders at the manufacturing level, excluding the even more volatile ship building and utilities, is expected to rebound sharply by 15.5% in June, after a drop of no less than 19.5% in May.
* All times are GMT
USD/JPY Technical Analysis
Dollar/yen began the week with an attempt on 103, but once this didn’t succeed, it was all downhill. The pair eventually rebounded around 101.60 and closed the week around the 102 magnet level.
Live chart of USD/JPY:
Technical lines from top to bottom
104.80 capped the pair during January and with current ranges, looks distant. 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. The round number of 103 has shown its strength in late July 2013.
102.70 was a stubborn peak during February and now switches to support. In the narrower range, 102.30 is weak support.
102.00 is a round number that supported the pair several times and remains and important line that the pair seemed to like very much – the “magnet”. 101.60 is weak support in the narrower range.
101.10 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.
I am neutral on USD/JPY
Geopolitics in Ukraine, Gaza and Iraq all boost the yen and so do weaker US yields. On the other hand, the improving US economy and the recent weakness in the Japanese support the pair. All in all, with the current proximity to 102, we can expect trading to stick around this level.
More on the yen and US bonds: USD/JPY and US Notes Elliott Wave Analysis
- 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 GBP/USD (cable), look into the British Pound forecast.
- For the Australian dollar (Aussie), check out the AUD to USD forecast.
- For USD/CAD (loonie), check out the Canadian dollar forecast.
- For the kiwi, see the NZDUSD forecast.