USD/JPY Forecast May 26-30

USD/JPY  dropped to key support but bounced very nicely. A speech from BOJ governor Kuroda and fresh inflation numbers are the key events. What is the next direction for this major pair?  Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.

Yet again, the Bank of Japan refrained from action and it seems that the chances of new moves  becomes lower. Together with global worries, the yen strengthened. However, the  resilience seen in US stock markets together with a steady US dollar supported the pair.

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

1. Monetary Policy Meeting Minutes: Sunday, 23:50. This release gives us some insight on  what the BOJ members are thinking. While the report is not for the latest meeting but rather one further in the past, the views are likely to have an impact,  especially if they relate to monetary policy in July.  
2. CSPI: Monday, 23:50. The Corporate Services Price Index is yet another measure of inflation. After rising only 0.7% y/y in March, a leap of 3.3% is expected now, all due to the sales tax hike.
3. Haruhiko Kuroda talks: Wednesday, 00:00. In his previous public appearance, the governor of the BOJ lowered the expectations for action from the BOJ but talked about the currency. Will he try to talk down the yen again? Is this a substitute for more stimulus. In any case, his speeches move markets.
4. Retail Sales: Wednesday, 23:50. Retail sales jumped by no less than 11% in March, in anticipation of the tax sales hike. Consumers were rushing to buy goods before prices rose. And now, a significant drop of over 3% is predicted for April, the first month in which the hike came into effect.
5. Inflation data: Thursday, 23:30.  The national CPI data is for April and is expected to show a big y/y leap. The focus is on core prices where a leap from 1.3% to 3.1% is predicted. The data for Tokyo already related to the month of May. After a big y/y jump was already reported for April, 2.7%, a stronger rise of 2.9% is predicted for May.
6. Household spending: Thursday, 23:30. This additional measure of consumer spending complements the retail sales figure. After a leap of 7.2% in March, a drop of 3.4% is expected for April.
7. Industrial Production: Thursday, 23:50. This is the preliminary publication for April, and could give an indication about the impact of the tax hike on the industrial side. After a rise of 0.7% in March according to the final number, a sharp drop of 1.9% is  forecast for April.
8. Housing Starts: Friday, 5:00.  Also in this figure related to the housing sector, the  impact of the hike is likely to be seen: a drop of 8.2% is expected after a slide of 2.9%. This sector is lagging behind.

* All times are GMT

USD/JPY Technical Analysis

Dollar/yen started the week with some range trading around 101.30. It then dropped sharply and found support at the 100.75 line (mentioned last week). It then recovered very nicely and found resistance only at the 102 line.

Technical lines from top to bottom

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.

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.

102.74  was a stubborn peak during February and is the top line of the current trading range. 102.00 is a round number that supported the pair several times and is the botom of the range.

101.30  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.

Uptrend support lost and recaptured

We can observe a moderate uptrend support line (thick black line) accompanying the pair since early March.  A break below the line was not sustained for more than a couple of days, and the pair is back above the line.

I turn from bearish to bullish  on USD/JPY

While the BOJ is reluctant to act once again, it also prefers a weaker yen and could attempt to talk it down. In addition, the stronger US economy could also help the pair. The clear rejection from the all important  support line is also a bullish indicator.

Further reading: