USD/JPY Outlook – December 27-31

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Monetary Policy Meeting Minutes, housing data and Tokyo Core CPI are the main events to close 2010. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.

Japanese Finance Minister Yoshihiko Noda said the government has managed to meet its targets for the 2011/12 budget aiming to reduce its public debt which is about twice the size of its $5 trillion economy by new bond issues, severe cuts from ministries’ initial budget request and increasing its tax revenue. Will these measures help jumpstart Japanese economy?

USD/JPY daily chart with support and resistance lines marked. Click to enlarge:

usd jpy forecast december 27-31

Let’s start:

  1. Monetary Policy Meeting Minutes: Sunday, 23:50. The Bank of Japan has started buying financial assets in an attempt to snap the Japanese economy out of its prolonged stagnation and in response to the Fed’s resolution. The Asset purchase’ aim is to prevent the yen from appreciating, and consequently hurting exporters. In order to fight deflation Bank Of Japan Governor Masaaki Shirakaw dropped benchmark interest rates to near zero.
  2. Housing Starts: Monday, 5:00. Japanese housing starts grew by 6.4% in October from the previous year, after increasing 17.7% in September. This reading was less than 9.7% increase expected had expected. Construction orders received by big 50 contractors dipped by 5.6% in October following a 15% fall in September. An even smaller growth of 5.1% is expected now.
  3. Household Spending: Monday, 23:30. Household spending in Japan decreased by 0.4% in October compared to the previous month standing at 287,433 yen less than 0.6% drop predicted by economists. The average monthly income per household was 494,398, up 7.2 percent on year. The average of consumption expenditures was 320,727 yen, up an annual 4.4 percent. A rose of 0.4% is forecasted.
  4. Tokyo Core CPI: Monday 23:30. Core CPI for the Tokyo fell 0.5% from a year earlier in October, indicating persistent deflation. The strong yen, which decreases the prices of imported goods, has further complicated the government’s fight against deflation. A further drop of 0.4% is predicted.
  5. Prelim Industrial Production: Monday, 23:50. Japan’s seasonally adjusted industrial production fell 1.8% in October following 1.6 drop in September. This is the fifth consecutive monthly fall. A rise of 1.0% is expected now.
  6. Retail Sales: Monday, 23:50. Retail sales the key indicator of consumer spending fell 0.2% in October, down from of 1.4% a rise in September. Analysts had expected October’s figure to come in at around 0.8%. 0.5% rise is predicted.
  7. Average Cash Earnings: Tuesday 1:30. Average Cash Earnings increased by 0.6% in October after 0.9% in the previous month. Analysts had expected 0.7% rise. Income is correlated with spending-the more disposable income consumers have, the more likely they are to increase spending, thus implicating a probable hike in the yen for the succeeding events. The same increase of 0.6% is expected to occur.
  8. Manufacturing PMI: Thursday, 23:15. The Nomura/JMMA Manufacturing Purchasing Manager Index reached 47.3 points in November slightly better than October’s seventeen-month low of 47.2. The level is still beneath the 50.0 threshold indicating contraction with a reduction in new business and decline of output. A small rise is expected.

* All times are GMT

USD/JPY Technical Analysis:

A failed attempt to rise at the beginning of the week sent Dollar/Yen piercing through 83.40 (mentioned last week, and down to the 82.87 line and it closed the week just above it.

Looking up, 83.40 is now strong resistance, after the recent fall. It’s followed by 84.40, that proved to be a strong line in recent weeks.  Above, 85.93 is the highest level reached after the big intervention in September, and is strong resistance as well.

Higher, the next lines are rather close – 86.35 was a support line in July and later switched to resistance. Right afterwards,  86.88, that worked as support earlier.

More important resistance is found at 88.10, which was a support line in March and later served as resistance. The last resistance line for now is 89.15 which capped the pair quite some time ago.

Looking down, 82.87, the lowest level before the intervention is the next line, returning to be a strong line. The low of 82.34, seen earlier in the month, is another minor line on the way down.

Below, the next line of support is 82, the round number that capped the pair during October and November. Below, 80.87 is a weaker line, after providing support at the beginning of October.

Lower, 80.40 is the lowest close the pair ever had, and it’s followed by the lowest intra-day low of all times 79.75.

I am now neutral on USD/JPY.

The Chinese rate hike will trigger risk aversive that can support the yen, despite the higher US yields. The week between Christmas and New Year’s will probably provide stable trading for the pair.

For further reading:

Get the 5 most predictable currency pairs

About Author

Anat Dror – Senior Writer

I conceptualize, design and create multi-lingual websites. Apart from the technical work, my projects usually consist of writing content for these sites in English, French and Hebrew.

In the past, I have built, managed and marketed an e-learning center for language studies, including moderating a live community of students.

I’ve also worked as a community organizer