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USD/JPY  posted modest gains last week,  as the pair  closed at 120.55. This week’s highlights are  Retail Sales and the Tankan indices.  Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.

In Japan, inflation indicators posted declines, underscoring weak economic activity. There is now growing talk of action from the Bank of Japan, possibly in late October. The  US dollar  got some help from the Fed last week, as Yellen surprised with a relatively hawkish speech,  and  the week  ended on a positive note  as  Final GDP for Q2  posted a strong gain.

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

USD_JPY_Forecast.Sep28-Oct2

 

  1. Retail Sales: Tuesday, 23:50. Retail Sales is the primary gauge of consumer spending, one of the  engines of economic growth. The indicator has posted four straight gains, including a July reading of 1.6%, which beat the forecast of 1.1%. The markets are expecting  another respectable gain  in August, with an estimate of 1.3%.
  2. Housing Starts: Wednesday, 5:00. Housing Starts provide a snapshot of the level of activity in the housing sector. The indicator posted a gain of 7.4% in July, but this fell short of the estimate of 11.2%. The forecast for the  August  report is a gain of 7.7%.
  3. Tankan Manufacturing Index: Wednesday, 23:50. This indicator is based on a survey of large manufacturers and is a key event. The indicator improved to 15 points in Q2, its strongest showing in five quarters. This reading was better than the estimate of 12 points. For Q3, the markets are expecting a reading of 13 points.
  4. Tankan Non-Manufacturing Index: Wednesday, 23:50. This indicator continues to improve, and hit an impressive 23 points in Q2, matching the forecast. The Q3 report is expected to be almost as strong, with a forecast of 21 points.
  5. Final Manufacturing PMI: Thursday, 1:35. The index has been slightly above the 50-line since May, indicative of slight expansion in the manufacturing sector. The  August reading came in at 51.7 points, within expectations. The  estimate for the September release stands at
  6. 10-year Bond Auction: Thursday, 3:45. The average yield on 10-year bonds showed little movement in September, with a yield of 0.42%, compared to 0.40% a month earlier.
  7. Household Spending: Thursday, 23:30. Household Spending is an important measure of consumer spending. The indicator has struggled, posting 3 declines in the past 4 readings. The August reading came in at -0.2%, surprising the markets, which had expected a respectable gain of 0.9%.  The September release is expected to bring better news, with an estimate of 0.4%.
  8. Monetary Base: Thursday, 23:50. Any unexpected reading in Monetary Base could lead to the BOJ making changes to its monetary policy. Recent readings have been steady, and the August release came in at 33.2%, almost matching the estimate. The estimate for September stands at 34.2%.

* All times are GMT

USD/JPY Technical Analysis

USD/JPY  opened the week at 120.01. The pair dropped to a low of  119.22 late  in the week  before the dollar rebounded, as the pair  touched a high of 120.98, as resistance  held firm at 121.50  (discussed last week). USD/JPY closed the week at 120.55.

Live chart of USD/JPY: [do action=”tradingviews” pair=”USDJPY” interval=”60″/]

Technical lines from top to bottom:

We start with a top level at the round number of 125.

Another round number, 123, was a swing low in July and remains of importance. 121.50 is  the high in September and importance resistance.

120.40, which  was a swing low in July, defends the round level of 120.

118.50 is the next key level after working as such during the spring and also lately.

116.90 supported dollar/yen early in the year and is a stepping stone towards the  crash low of 115.90.

I am  bearish  on USD/JPY

The Fed balked at a rate hike in September, but  the markets remain hopeful,  and we  could see  Yellen press the rate trigger before the end of the year. The Japanese economy continues to limp, and this is weighing on the yen.

In our latest podcast we explain why the dollar defies the doves

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Further reading: