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The  Japanese yen  slightly weakened as it continued digging in the same trading range. When will we see  a breakout?  Fresh inflation numbers will be of interest this week.  Here is an outlook on the major market-movers and an updated technical analysis for USD/JPY.

Japan grew by only 0.3% in Q4 according to the first publication.This disappointing figure already triggered initial small steps by the BOJ, but there is a notion that bigger steps are on the way, as the April tax hike is getting closer. In the US, some figures such as CPI and jobless claims were OK, but the streak of bad figures hasn’t ended, as the negative Philly Index showed us. However, the Fed is still on track to continue tapering, as the FOMC meeting minutes confirmed. What is the next move?

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

USDJPY Technical Analysis February 24 28 2014 forex fundamental outlook and sentiment for dollar yen

  1. Manufacturing PMI: Thursday, 23:15. Markit’s Manufacturing PMI for Japan has scored more than 50 points for nearly one year, reaching a peak of 56.6 points in January. A small dip could be seen now, but still in growth territory, above 50 points.
  2. Household Spending: Thursday, 23:30. This official government figure fell short in the past three months, growing less than expected. Spending by households has an impact on inflation. After the 0.7% rise in December, a marginal growth rate is likely now.
  3. CPI: Thursday, 23:30. The Bank of Japan is battling deflationary forces and has had some success. However, after disappointments from a few recent figures, perhaps the rise in prices may be falling as well. Special attention is dedicated to the Tokyo Core CPI, which is for the current month of February. After a y/y rise of 0.7% in January, a slightly stronger rise is predicted now. The National Core CPI for the previous month is expected to remain unchanged at the 1.3% level seen beforehand. Also the “core core” CPI will be watched, as it excludes all possible volatile items.
  4. Unemployment Rate:  Thursday, 23:30. Japan’s already low unemployment rate surprisingly dropped from 4% to 3.7%. While this isn’t the current focus of policymakers, it is a good sign. The same rate is likely now.
  5. Industrial Production:  Thursday, 23:50. The initial estimates for industrial production fell short of predictions in the last 7 months. Nevertheless, we still see growth there. After a rise of 1.1% in December, a smaller rise is predicted now.
  6. Retail Sales:  Thursday, 23:50. Retail sales is the all important measure of consumption, which Abe wants Japanese to do more of. Retail sales grew by 2.6% in December, and are expected to have grown at a faster pace now.
  7. Housing Starts: Friday, 5:00. The growth in housing starts has been outstanding lately, beating expectations. After two consecutive double digits growth rates (14.1% and 18%) a milder growth rat is expected for January.

* All times are GMT.

USD/JPY Technical Analysis

Dollar/yen began the week with a small drop but immediately bounced alongside the uptrend support line. The pair went as high as 102.74 before making another dive to uptrend support and another bounce sent it once again to higher ground.

Technical lines from top to bottom

Note that some lines have changed since the previous week. 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.

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 is a round number that provided support to the pair in late January and is now a pivotal line in the range.

101.35 replaces the previous peak of 101.44 after working as support in February. 100.75 was a cushion for the pair during several days earlier in the year and is the last defense before the very round number.

100 is the ultimate support line and the last line for now.

I am  bullish on USD/JPY

The Fed is keen to continue QE tapering and only really terrible data can change the course of the Fed. In Japan, the economy is slowing down even before the expected tax hike. The BOJ already took small action, hinting it could go for bigger moves. Hints about a move in April could send the pair out of the current consolidation wedge already this week.

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Further reading: