Search ForexCrunch

The Japanese yen continues to be red-hot, and has posted sharp gains for the second straight week. USD/JPY  dropped over 400 points, as the pair  dipped below the 94 level before closing the  week at 94.06.  There are only four releases in the upcoming week, highlighted by a speech by  BOJ Governor Haruhiko Kuroda.  Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

There was some solid Japanese releases last week, as  Current Account and  Manufacturing Production were very sharp and well    above expectations. In addition,  the yen benefited from a  broadly weak dollar as the Japanese currency posted sharp gains against the dollar.

Updates:

  • Dollar/yen began the week with a recovery, but it wasn’t really able to settle above 95. The  Tertiary Industry Activity disappointed by remaining flat.
  • Revised Industrial Production remained unchanged at 0.9%, but this was well short of the estimate of 1.7%.
  • Dollar/yen  has pushed higher, and was trading in the mid-95 range.
  • Trade Balance posted a larger deficit, coming in at -0.82 trillion yen,  but beat the estimate of -0.89 trillion yen.
  • USD/JPY has moved lower, and was trading just above the 95 line.
  • The Fed said that downside risk have diminished – the US dollar rises across the board, and also against the Japanese yen.
  • BOJ Governor Haruhiko Kuroda addressed a banking conference in Tokyo on Friday.
  • USD/JPY continues to move up, as the pair tested the 98 line before retracting. The broadly stronger dollar has posted gains of over 300 points against the struggling yen.

 

USD/JPY  daily chart with support and resistance lines on it. Click to enlarge:       USD JPY Forecast June 17-21

 

  1. Tertiary Industry Activity: Sunday, 23:50. This indicator measure the change in spending by Japanese businesses. The indicator has been alternating between positive and weak readings in 2013, and market forecasts have often  missed the mark. The May release was the indicator’s weakest showing this year, with a decline of 1.3%. The markets are expecting a stronger reading in June, with an estimate of a modest gain of 0.2%.
  2. Revised Industrial Production: Tuesday, 4:30.  Revised Industrial Production has been steadily improving, and the indicator climbed a respectable 0.9% in the May release,  easily beating the estimate of 0.2%. The markets are  expecting  better news from the indicator in the upcoming reading,  with an estimate  of 1.7%. Will  the indicator  beat  this rosy prediction?
  3. Trade Balance: Tuesday, 23:50. Japan’s trade  balance  continues to improve, but the country  has not  rung up a trade surplus in over two years. The May reading produce a smaller deficit of JPY 0.76 trillion, but this was above the estimate of a JPY 0.63 trillion deficit. The markets are expecting the deficit to  grow slightly in June, with a forecast of JPY -0.89 trillion yen.
  4. BOJ Governor Haruhiko Kuroda: Friday, 6:35. Along with Prime Minster Abe, Kuroda has engineered Japan’s extreme easing policy, which has seen the yen plummet. So any statements by the BOJ Governor could be market-movers. Kuroda will speak at a bank conference in Tokyo.

*All times are GMT.

USD/JPY  Technical Analysis

The  yen  picked up where it left the week before, posting more sharp gains against the dollar. USD/JPY began the week at  98.36 and quickly touched a high of 99.28. It was all downhill for the pair from there, as the pair plunged to a low of 0.9379, before closing the week at 94.06,  an  important support level (discussed last week).

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

Technical lines from top to bottom

With USD/JPY continuing to drop, we  start at lower levels.

There is  important resistance at  the  all-important  round number of  100.  USD/JPY broke through this pair in  early June, and the line  has strengthened as the pair continues to push  to lower  levels. 98.90 capped the pair in June 2009 and has also strengthened.

Next, 97.80, had served in a support role from early May until last week. It has reverted to a strong resistance line as the pair continues to drop.

The round 97 line also worked as important support in May. The pair easily broke through this line as the yen surged, and it is providing resistance.

The March 2013 peak of 96.71  also failed to stem the tide, as the pair broke  this support line.  Next is the round number of 95, which many had expected to provide  stronger support for the pair. It has reverted to a resistance line.

USD/JPY is testing 0.9406, where it ended the week.  This line had  provided support  since April, protecting the 94 line. Will it also be swept away this week by the strong yen?

Below, 0.9277 has held firm since April. It is followed by 91.19, which has not been tested since February.

Next is the critical line of 90. This  psychologically important  support level  has remained intact since  January. The final support line for now is at 88.13.

I am  bullish on USD/JPY

The yen  has surged in June, gaining a remarkable 600 points so far this month. The yen  continues to trade at levels not seen  since  early April.  After  such  strong gains by  the yen  in such a short period, we could be due  for a correction. As well, it is becoming increasingly clear that  QE tapering will happen this year, which would be dollar-positive.  So if the US produces some strong  US numbers, these would  point  to a stronger recovery  and fuel expectations  about QE being  scaled back, which would bolster the dollar.

More: A mild hawkish change? 4 scenarios for the Fed decision – FOMC preview

Further reading: