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USD/JPY  moved higher as the Japanese yen surrendered to the greenback’s strength across the board. Inflation data is the highlight among a list of indicators.  Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.

Japan recorded a wider trade balance deficit than expected, 1.02 trillion yen, but the rise in exports was encouraging. In the US, the  upbeat housing data certainly gave a boost to the US dollar, which  continued carrying the rally with the not dovish FOMC minutes  even though  geopolitics remained worrying.  Yellen’s Jackson Hole speech did not offer anything new, and left the previous trends in tact and even pushed the pair slightly higher.

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

USDJPY Technical analysis chart August 25 29 2014 fundamental outlook dollar yen sentiment

  1. SPPI: Monday, 23:50. The  Services Producer Price Index has enjoyed stronger rises in the past three months thanks to the sales tax hike: prices were up 3.6% in June and are expected to follow suit in July with 3.7%. Note that the figure stood  around 0.7% before April’s hike.
  2. Household Spending: Thursday, 23:30. The level of spending is a good measure of consumer activity, and it also factors inflation. The month of March saw a huge leap as a preparation for the tax hike, but it’s been downhill since then. June saw a drop of 3% and a smaller drop is probable for July: 2.7%.
  3. Inflation data:  Thursday, 23:30. Japan publishes national data for July  and Tokyo data for July. The focus is on the core y/y data,  especially in the Japanese capital. The post-hike numbers were under 3%, with July’s core figure standing at 2.8%. A slightly lower  level of 2.7% is expected now. The  national figure for July will probably remain unchanged  from the 3.3% recorded in June.
  4. Unemployment rate:  Thursday, 23:30. Japanese workers enjoy a low level of unemployment.  Nevertheless, the surprising jump from 3.5% to 3.7% seen in June was quite disappointing.  No change is expected now.
  5. Industrial Production:  Thursday, 23:50. This is the initial publication for July.  Recent figures have disappointed,  with an even stronger  deterioration in April. After a drop of 3.4% month over month in June, a  small rebound is likely in July: 1.4%.
  6. Retail Sales: Thursday, 23:50. The  Japanese consumer is  buying less since the rate hike, but recent drops have been minor. After a fall of 0.6% in June, a minor slide of 0.1%    is likely for the month of  July. The last rise was recorded in March: a whopping 11% leap that preceded the sales tax hike.
  7. Housing Starts: Friday, 5:00. While this is a volatile figure, the trends do have an impact. Also here, drops have been recorded since the tax hike came into effect. A fall of 9.5%  y/y has been seen in June, and a similar plunge of 10.5% is predicted for July.

* All times are GMT

USD/JPY Technical Analysis

Dollar/yen began the week with a climb to higher ground and managed to break and settle above the 103 level (mentioned last week). It wasn’t an easy ride from there.

Live chart of USD/JPY:

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Technical lines from top to bottom

We start from higher ground this time. 105.44 was the highest level seen since Abe came into power. 104.92 is the next line, after it capped the pair around the turn of the year.

104.10, the high of April 2014 is currently a minor line after the break. Below, 103.77 provided support for the pair in January and served as a clear separator of ranges. It now switches to support.

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 resistance. 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.

I am  bullish  on  USD/JPY

In Japan, there are growing doubts that the battle against deflation has been won over. Weakness might require more stimulus of all possible sorts. In the US, there is a growing notion that the economy is on a sustainable path of growth, as fears about various sectors is subsiding and as the FOMC is leaning towards tightening.

More: listen to our podcast about Japan:

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Further reading: