Dollar/yen eventually closed lower, erasing some of the previous gains, but remaining in range. The Greek elections promise to rock this pair. In addition, Monetary Policy Meeting Minutes, Trade balance and the G20 meetings are the main events on our list this week. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.
Mixed figures were released last week: BSI Manufacturing Index dropped more than predicted to -5.7, Tertiary Industry Activity declined unexpectedly 0.3% while anticipated a 0.4% gain, however Household Confidence surprised with an increase to 40.7 from 40.0 contrary to predictions of a slight drop to 39.9. The overall picture reveals a negative trend in Japan’s economic activity. Will this trend continue?
Updates: The BOJ Monthly Report was released on Monday. The report was upbeat about Japan’s export market, but noted that slower slowing growth in China and the severe debt crisis in the Euro-zone could hurt the fragile Japanese economy. Trade Balance will be released on Tuesday. USD/JPY continues to be choppy, as the pair was trading at 78.90. The BOJ released its Monetary Policy Meeting Minutes on Tuesday. Trade Balance plunged, posting a deficit of 66 trillion. It was the largest monthly deficit in over four years. All Industries Activities came in at 0.1%, a notch below the market estimate of 0.2%. BOJ Governor Shirakawa delivered a speech at a bank conference in Tokyo. USD/JPY weakened slightly as the BOJ stated that it was prepared to take bold action to support the economy if necessary. This raises the possibility that the central bank is considering monetary easing measures in July. USD/JPY was trading just below the 80 line, at 0.7995.
USD/JPY daily chart with support and resistance lines on it. Click to enlarge:
- Greek elections: Sunday evening, with a long lasting impact. the yen will likely fall on a “positive” result and rise on a “negative” result, with USD/JPY mirroring EUR/USD : a pro-bailout victory will boost USD/JPY, an anti-bailout victory will weaken the pair and a hung parliament is expected to weigh on the pair. See details here: how to trade the Greek elections.
- BOJ Monthly Report: Monday, 5:00. The Bank of Japan ‘s last monthly economic report showed no changes in the overall assessment of the economy conditions in May. The report stated that Japan is on a moderate path of recovery with improved economic conditions.
- G20 Meetings: Mon-Tue. The next G20 meeting will be held in Los Cabos, Mexico where finance ministers and central bank governors coming from 19 states will discuss global issues. However the central theme of this meeting will be the European debt crisis. The meeting starts a day after Greek elections which could decide whether the country stays in the euro zone. Brazil conditions its monetary contribution to the IMF Funding on having more power at the IMF. Voting power at the IMF is currently dominated by the United States and other developed powers.
- Monetary Policy Meeting Minutes: Tuesday, 23:50. April monetary policy meeting minutes revealed the board members agreed to continue the bank’s monetary easing measures to boost the economy and stabilize prices. Since interest rate is at the minimum low, expanding the asset purchase is the nearly the only course of action for the BOJ to boostJapan’s economy, but sluggish domestic demand could spoil these efforts.
- Trade Balance: Tuesday, 23:50. Japan Adjusted Merchandise Trade Balance increased to ¥-480.152B in Apr from ¥-617.2B in March better than the ¥-600B forecasted by analysts. Exports gained 7.9% on year following the 5.9% increase in the prior month, while imports climbed an annual 8.0% down from the revised 10.6% a month earlier. Another improvement to ¥-360.000B is expected now.
- All Industries Activity: Wednesday, 4:30. Japanese all industry activity declined for the third consecutive month in March dropping 0.3% following 0.1% decrease in the previous month. Analysts expected a flat reading. The main fall occurred in the construction sector. A gain of 0.2% is expected now.
* All times are GMT
USD/JPY Technical Analysis
$/yen traded in a limited range throughout most of the week. When it broke under the 79 line (discussed last week), the move was relatively sharp and 79 quickly became resistance. It eventually closed at 78.62.
Technical lines from top to bottom
81.43 is stronger after serving as resistance for a recovery attempt. 80.60 provided support for the pair around the same time, and served as a bouncing spot for the next moves.
80.20 separated ranges in May 2012 and remains another barrier after 80 on the upside. The round number of 80 is psychologically important, even though it was crossed several times in recent months.
79.70 is an updated version of 79.60, which had a historic role. The 79.70 cap was seen in June 2012. The round number of 79 served as a bottom in May 2012 but is now weaker after the fall.
78.30 capped a second recovery attempt in November, after the intervention and had an important role earlier as well, working as support. This is a key line after the fall.
77.50 was the bottom border of a range the pair had at the end of 2011. It is followed by 77, which is only minor support.
76.60 was a cushion for the pair at the beginning of the year and is rather strong. 76.26 is the next line on the downside after working as a support quite some time ago.
75.95 was an all time low and was the catapult for the pair’s rally during 2012. The current all-time low of 75.57 is the last line for now.
I am neutral on USD/JPY.
On one hand, the fallout from the Greek elections can push the pair lower, as the yen remains the ultimate safe haven currency. However, the lack of US QE can provide support. In the longer run, the pair has potential to rise.
Another note: USD/JPY is the most predictable currency pair for Q2.
Further reading:
- For a broad view of all the week’s major events worldwide, read the USD outlook.
- For EUR/USD, check out the Euro to Dollar forecast.
- For GBP/USD (cable), look into the British Pound forecast.
- For the Australian dollar (Aussie), check out the AUD to USD forecast.
- For the New Zealand Dollar (kiwi), read the NZD forecast.
- For USD/CAD (loonie), check out the Canadian dollar forecast
- For the Swiss Franc, see the USD/CHF forecast.
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