USD/JPY Forecast Jan. 26-30

Despite the turmoil in the currency markets last week, USD/JPY  was unchanged last week, closing at 117.73. There are  eight  events this week.  Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.

The BOJ policy statement did not contain any surprises, as the central bank maintained current monetary policy. Will this week’s BOJ  minutes provide any details that could shake up the pair? US key releases did not impress, as Unemployment Claims disappointed and Existing Home Sales missed expectations.

USD/JPY graph with support and resistance lines on it:

1. BOJ Monetary Policy Meeting Minutes: Sunday, 23:50. The BOJ releases the minutes of its policy meeting, which took place last week. As expected, the BOJ didn’t make any changes to its monetary stance. The yen could gain ground if the minutes are more hawkish than expected.
2. Trade Balance: Sunday, 23:50. Trade Balance is closely linked to currency demand, as foreigners must  buy  yen to purchase  Japanese goods and services. Japan’s  trade deficits have decreased in recent  months, with the November reading coming in at -0.93 trillion yen. This beat the estimate  of -0.99 trillion. The  estimate for the December reading  stands at -0.74 trillion yen.
3. SPPI: Monday, 23:50.  The Services Producer Price Index measures corporate inflation. The index remained steady at 3.6% last month, edging above the estimate of 3.5%. No change is anticipated in the December reading.
4. Retail Sales:  Wednesday, 23:50.  Retail Sales is the primary gauge of consumer spending. The indicator has fallen sharply in recent readings, falling to 0.4% in November. This was well off the forecast of 1.2%. The markets are expecting a strong turnaround in December, with an estimate of 1.1%.
5. Household Spending:  Thursday, 23:30.  Household Spending  is another important consumer spending indicator. It continues to post declines, although the November reading of -2.5% was better than the forecast of -3.5%. The December estimate stands at -2.3%.
6. Tokyo Core CPI:  Thursday, 23:30. This  is the most important indicator of  consumer inflation and should be treated by traders  as a market-mover. The index has weakened for five straight releases and came in at 2.3% in December. The downward trend is expected to continue, with the January estimate standing at 2.2%.
7. Preliminary Industrial Production:  Thursday, 23:50. The indicator is an important gauge of the strength of the manufacturing sector. The indicator has been struggling and declined 0.6% in December, missing the estimate of 1.0%. The markets are expecting much better news in January, with an estimate of 1.3%.
8. Housing Starts:  Friday, 5:00. This minor event has been posting sharp losses, with the previous release coming in at -14.3%. The markets are expecting another strong decline, with a forecast of -14.6%.

* All times are GMT

USD/JPY Technical Analysis

Dollar/yen started the week at 117.59.  The pair  quickly rose  to a  high of 118.87, before reversing directions and dropping to a low of 116.92,  as support held firm at  116.82 (discussed last week). The pair closed  the  week at 117.73.

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 was tested during the week but recovered. It remains a weak resistance line.

116.82 held firm as the pair dropped close to this line. 116.02 is the  next support level.

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  neutral  on  USD/JPY

The yen managed to hold its own against the dollar last week, bucking the trend which saw the greenback post broad gains. Weak inflation continues to be a problem in both the US and Japan. The divergence in monetary policy favors the dollar, but the dollar may not be able to take advantage until there is greater  clarity regarding the timing of a rate hike by the Federal Reserve.

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