The Japanese yen posted strong gains, as USD/JPY dropped about 100 points. The pair closed the week at 117.47. There are six events this week, highlighted by the BOJ Monetary Policy Statement. Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.
The yen was helped by a large current account surplus, and Core Machinery Orders bounced back with a gain. In the US, last week’s data was unimpressive, as manufacturing and employment numbers disappointed. On the bright side, consumer confidence continued to push higher.[do action=”autoupdate” tag=”USDJPYUpdate”/]
USD/JPY graph with support and resistance lines on it:
- Revised Industrial Production: Sunday, 23:30. This release tends to fluctuate, but recent estimates have been close to the actual readings. In the October release, the indicator posted a gain of 0.4%, slightly higher than the forecast of 0.2%.
- Consumer Confidence: Monday, 00:00. Consumer Confidence is closely linked to consumer spending, a key component of economic growth. The indicator has dropped for four straight readings, pointing to weakening consumer confidence. The November release fell to 37.7 points, well below the estimate of 39.6 points. The markets are expecting a stronger reading in December, with an estimate of 38.6 points.
- BOJ Monetary Policy Statement: Tuesday, Tentative. This is the major event of the week. The BOJ recently increased its monetary stimulus and the central bank could take further action if the Japanese economy does not improve. The statement should be treated as a market-mover by traders.
- All Industries Activity: Tuesday, 23:30. The indicator points to weakness in the business sector, as the indicator has posted four declines in the past five readings. The October reading came in at -0.1%, shy of the estimate of 0.2%. The November estimate stands at 0.1%.
- BOJ Monthly Report: Thursday, 00:00. This release contains the BOJ’s analysis of current and future economic conditions. It is a minor event, unlikely to have much effect on the direction of USD/JPY.
- Flash Manufacturing PMI: Thursday, 20:35. The PMI has been above the 50-point line since April, pointing to ongoing expansion in the manufacturing sector. The indicator has been steady, posting two straight readings of 52.1 points.
* All times are GMT
USD/JPY Technical Analysis
Dollar/yen started the week at 118.50. The pair quickly rose to a high of 119.34, but then reversed directions and dropped all the way to 115.82, testing support at 116.82 (discussed last week). The pair then moved upwards and closed the week at 117.47.
Live chart of USD/JPY: [do action=”tradingviews” pair=”USDJPY” interval=”60″/]
Technical lines from top to bottom:
124.16 marked the start of a yen rally in June 2007, which saw USD/JPY drop to the 96 level.
122.19 remains a strong resistance line which has held firm since July 2007. The next resistance line is 121.39.
119.88 held firm as the pair posted slight gains early in the week.
117.94 has switched to a resistance role as the yen posted strong gains.
116.82 was breached in support but recovered. It is currently an immediate support level. 116.02 is the nextline of support.
114.65 has remained intact since December 2007, when the yen posted a strong rally which saw USD/JPY drop below the 96 line.
113.17 is the final support level for now.
I am bullish on USD/JPY
The yen had enjoyed two strong weeks, so we could see an upward correction by the pair. Market sentiment remains bullish on the US economy, which is in much better shape than that of Japan. Monetary divergence could weigh on the yen, as the Fed mulls the timing of a rate hike, while the BOJ looks at injecting more stimulus into the sluggish economy.
- 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.