USD/JPY Outlook Feb. 17-21

The Japanese yen  posted modest gains on the week, closing at 101.78. This week’s major release is the BOJ’s Monetary Policy Statement.  Here is an outlook on the major market-movers and an updated technical analysis for USD/JPY.

The yen  managed to shrug off some disappointing  Japanese  manufacturing numbers last week. In the US, Unemployment Claims was above the estimate and retail sales numbers weakened in January.

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

1. Preliminary GDP: Sunday, 18:50. Preliminary GDP is the primary gauge of economic activity and an unexpected reading can affect the direction of USD/JPY. The indicator is released on a quarterly basis, magnifying the impact of each release. GDP posted a gain of 0.5% in Q3, edging above the estimate of 0.4%. The markets are expecting better news in Q4, with an estimate of 0.7%.
2. Revised Industrial Production: Monday, 4:30. This minor manufacturing indicator posted a small decline of 0.1% last month, missing the estimate of +0.1%. The markets are expecting a sharp improvement in January, with an estimate of 1.1%.
3. Monetary Policy Statement:  Tuesday, Tentative. This is the highlight of the week. The BOJ is expected to maintain course with its monetary policy, which has led to a weak yen. The policy statement will be followed by a press conference hosted by BOJ Governor Haruhiko Kuroda. Any surprises from the BOJ could affect USD/JPY in a hurry.
4. All Industries Activity: Wednesday, 4:30.  This indicator has posted a gain of 0.3% last month, shy of the estimate of 0.4%. The markets are not expecting much change in the January reading, with an estimate of a 0.2% gain.
5. BOJ Monthly Report: Wednesday, 5:00. This report provides a detailed analysis of the BOJ’s view of economic conditions. It is a minor event and unlikely to have an effect on USD/JPY.
6. Trade Balance: Wednesday, 23:50. Trade Balance is closely connected to currency demand since foreigners must purchase yen in order to pay for Japanese exports. Japan continues to rack up monthly deficits. Last month’s release came in at -1.15 trillion yen, a lower deficit than the estimate of -133 trillion. The markets are expecting  a larger deficit in January, with a forecast of -1.56 trillion.
7. Monetary Policy Meeting Minutes: Thursday, 23:50.  The markets  won’t have to wait long to review the minutes of the BOJ policy meeting held earlier in the week. If the minutes are more hawkish than expected, the yen could make up some ground against the US dollar.

* All times are GMT.

USD/JPY Technical Analysis

106.66 has  held firm since November 2008.   This is followed by resistance at 105.70 which continues to provide strong resistance.

104.65 saw a lot of action in December and January when the yen was trading at higher levels.

The round number of 104 follows. This was a key line back in May 2008 and  is providing strong resistance.

102.50 continues to see activity. It is not a strong line and could face pressure  early in the week.

101.44 was the post-crisis high seen in April 2009, and  is the first line of  support.

100.85 saw activity in July as the dollar showed strength against the yen. It is protecting the key level of 100.

The round number of 100 is  a key psychological level. It is providing USD/JPY with steady support.

98.80 has remained firm since early November, when the dollar began a rally which saw it climb above the 105 line.

The final support level for now is 97.75. This line marked the start of a dollar rally in October, which saw the pair break above the 105 line.

I am  neutral on USD/JPY

Japanese economic numbers have been steady and inflation  continues to rise, albeit slowly. A strong GDP number early in the week could give a boost to the yen. In the US, employment  numbers remain a concern, but the markets are content with the general direction of the US economy.