USD/JPY Outlook February 4-8

USD/JPY continued its upward surge and only made a short pause to consolidate. Will Japan want to strengthen the yen at these levels or is it already out of control? Current Account is the highlight of this week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

In the US, the gain of 157K non-farm jobs was in line with expectations, and didn’t stop the dollar’s rise. Japan’s household spending worsened in December, down 0.7% after a 0.2% rise in the previous month. Likewise Prelim Industrial Production grew less than anticipated, gaining 2.5% after a 1.4% fall in November and Average Cash Earnings declined unexpectedly by 1.4% after falling 0.8% in the previous month contrary to the 1.1% rise expected.

Updates: Monetary Base climbed 10.9%. This was well below the estimate of 1.3.2%. BOJ Governor Masaaki Shirakawa will speak at the BOJ in Tokyo. USD/JPY has pushed above the 93 line. The pair was trading at 93.33.   The markets were caught off guard as BOJ Governor Masaaki Shirakawa announced he would be stepping down from his position on March 19th, three weeks early. The yen responded to the news by losing more ground. Core Machinery Orders jumped 2.8%, surprising the markets which had expected a decline of 0.7%. Leading Indicators came in at 93.4%, slightly below the estimate of 93.8%. Current Account, a key indicator, and Bank Lending will be released later on Thursday. USD/JPY is steady, and was trading at 93.67.

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

1. Monetary Base: Sunday, 23:50. Japan’s monetary advanced 11.8% in December from a year earlier after climbing 5.0% in November indicating that the monetary easing measures caused an increase in the amount of currency in circulation which in turn revived economic growth. An increase in the supply of money is expected to lead to additional spending, which in turn results in inflation. A further rise of 13.2% is expected now.
2. Core Machinery Orders: Wednesday, 23:50. Japan’s core machinery orders jumped 3.9% in November from the previous month, despite uncertainty over global markets condition. Compared with a year earlier, core orders increased 0.3 percent in November. A drop of 0.7% id forecasted now.
3. Leading Indicators: Thursday, 5:00. USD/JPY Leading Indicators Index disappointed in November reaching 91.9 from 92.8 in October, failed to meet the market estimate of 93.1. Despite the sluggish performance in 2012, the new Prime Minister Shinzo Abe is determined to eliminate deflation and boost growth in 2013-2014. A rise to 93.8 is expected this time.
4. Current Account: Thursday, 23:50.  Japan’s adjusted current account rose less-than-expected in November reaching 0.23T from 0.41T in October. Analysts expected Current Account to rise 0.31T. Another contraction to 0.24T is expected now.
5. Economy Watchers Sentiment: Friday, 5:00. Japan’s service sector sentiment edged up to 45.8 in December, following 40.0 in November. Likewise, the outlook index indicating the level of confidence in future conditions, was 51.0, up from 41.9 in November, indicating a positive note on future readings. A further improvement to 48.2 is expected this time.  

*All times are GMT.

USD/JPY  Technical Analysis

Dollar/ ¥ started off the week below the 91.20 line. A first attempt was not successful. A second one already saw the pair leap and stall at 92.30, only to continue shortly afterwards and close at 92.83.

Technical lines from top to bottom

Note that quite a few of the lines changed since last week. High the sky, we find the 97.80 line, which was a peak back in 2009. This is a high level that could be targeted if 95 is breached. Before that, we have 96.90, which was a swing high in July 2009.

A very important line is 94.70 – which capped the pair for long months in early 2010. 93.75 is the swing high of January 2010 and is minor resistance.

92.88 was a peak in June 2010 and is the immediate peak for the pair. 92.30 was a peak in October 2009 and now switches to immediate support, albeit a weak one.

91.20, which capped the pair very temporarily on its way up in January 2013, is a support line before the round figure of 90. The ultimate support line for now is 90 – a target marked by many analysts and a round number. This line remains close after the break.

Just below, 89.67 capped the pair for several days in January 2013 and is now immediate support. Below, 89.10 was a peak in the summer of 2010, before the pair began descending and is now support.

88.40 is the peak of January 2013 and is immediate resistance at the moment. Below, 87.60 provided support on a pullback when the pair traded higher in January, after previously working as resistance.

86.27, which served as resistance, also in 2010 is weakening now. 85.50 is a high peak seen back in early 2011 and remains important support now.

Another Recent Technical View:  – USD/JPY Hits New Long-Term High Above Key 92.00 Level  by James Chen.

I am bullish on USD/JPY

Japan only received a very small slap on the wrist from its peers so far, and politicians still have an incentive to drive USD/JPY towards 95 or even 100. We could see more short stops for consolidation, but these seem temporary. The trend could change towards the G-20 summit, but this does not happen in the upcoming week. Also the higher US yields and the improving situation in the US support the pair.