USD/JPY was on the back foot following another stock market fall and some dollar correction. Will it break the 100 line? Capital Spending and Average Cash Earnings are the major events this week. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.
Last week Bank of Japan Governor Haruhiko Kuroda said the central bank will try to stabilize bond market volatility applying strong downward pressure on long-term yields. Furthermore the quantitative easing will continue to increase as the BOJ purchases more government debt. Will these strong measures also help to improve capital spending? The drop of the Nikkei index hurt dollar/yen once again.
Updates:
- Another fall in the Nikkei (3.72%) sends USD/JPY very close to 100. Will it bounce or break? It seems like the pair escaped a fall.
- Crash: USD/JPY Loses the 100 line and sets a new low at 99.62 (for now). The trigger was a terrible US ISM Manufacturing PMI.
- Below 99: The dollar fall continues across the board and USD/JPY already dipped below 99.
- Recovery: USD/JPY rises back towards 100 with Japanese stocks. Breaking back above 100 seems like a hard task though.
- Capital Spending improved from -8.7% to -3.9%. This beat the estimate of -5-5%. Monetary base continues to rise sharply, as the BOJ pumps more money into the economy. The indicator jumped from 23.1% to 31.6%. The estimate stood at 24.3%.
- Average Cash Earnings rose 0.3%, missing the estimate of 0.6%. Japanese 10-year bonds posted an average yield of 0.86%. This was higher than the previous yield of 0.60%. USD/JPY dropped below the 100 line, but has bounced higher. The pair was trading at 100.32.
- Yet another crash in the Japanese stock market sends USD/JPY below 100. The battle for the extra digit continues. Technical analysis: USD/JPY Stalls Bearish Correction
- US ADP Non-Farm Payrolls misses by 30K: only 135K instead of +165K. This sends USD/JPY towards 99, but the pair recovers quickly.
- See how to trade the US ISM Non-Manufacturing PMI with USD/JPY.
- US ISM Manufacturing PMI came out within expectations, but with a weak employment component. USD/JPY is a bit lower after the publication.
- Japanese 30-year bonds posted an average yield of 1.87%. This was higher than the previous auction, which saw a yield of 1.78%. Leading Indicators will be released on Friday.
- The yen continues to improve, as USD/JPY tests the 99 level.
- The US dollar collapsed across the board – following the mediocre jobless claims and the ECB. USD/JPY crashed to 95.50 before climbing above 97. Volatility is extreme.
- It’s quite mad to trade the yen.
- USD/JPY already fell below 95.50 as the madness continues – intervention coming? – Analysis
- Non-Farm Payrolls +175K, unemployment rate 7.6% – The slightly better than expected outcome was an opportunity for a big dollar comeback, however, it wasn’t a one-way street. USD/JPY fell below 95 only to climb over 150 pips. It is trading at 96.60 at the moment.
- USD/JPY recovered very nicely and ended the week at 97.48. Updated technical analysis: USD/JPY Extends Decline to 95.00 Support then Recovers
USD/JPY daily chart with support and resistance lines on it. Click to enlarge:
- Capital Spending: Sunday, 23:50. Business spending in the fourth quarter fell 8.7% on the year, following a 2.2% gain in the previous quarter. Prime Minister Shinzo Abe is looking to increase businesses spending in order to turn the recent improvement in the economy to a real and sustainable recovery. He aims to remove obstacles standing in the way of capital spending raise it by 10%, to around ¥70 trillion, in three years. Another decline of 5.5 is expected.
- Monetary Base: Monday, 23:50. Japan’s domestic currency in circulation edged up in April to a record of 23%, following 19.8% gain in the previous month. The climb was bigger than the 21.0% reading expected by analysts. The central bank aims to nearly double the monetary base over two years by increasing purchases of government debt to end 15 years of nagging deflation. A further increase of 24.3% is estimated.
- Average Cash Earnings: Tuesday, 1:30. Labor cash earnings in Japan dropped 0.6% on a yearly base, in March, better than the 1.2% expected, after a fall of 0.8% reported in February. A rise of 0.6% is anticipated.
- 10-y Bond Auction: Tuesday, 3:45. Japanese government bond prices climbed, after a 10-year sale proceeded smoothly in May. The Ministry of Finance offered 2.4 trillion yen of 10-year notes with a bonus of 0.600%. The notes sold at a lowest price of 100.0, better than expectations, and drew bids of 3.71 times the amount offered, up from the previous sale’s bid-to-cover ratio of 3.22 times indicating the auction was solid and is expected to do well since the BOJ is going to be constantly buying this sector.
- 30-y Bond Auction: Thursday, 3:45. The Ministry of Finance offered 500 billion yen ($4.91 billion) of 30-year bonds, with a coupon of 1.8%. While some strategists recommended long yields, others believe the yield curve is likely to steepen and therefore recommend a neutral stance instead of buying at the 30-year sale.
- Leading Indicators: Friday, 5:00. The leading economic index dropped slightly to 97.6 in March from a revised 97.7 in the previous month. Analysts expected the index to rise to 97.7 from February’s originally reported 97.6. However, the coincident economic index, which measures the current economic situation, edged up to 93.3 in March from 92.5 in the previous month. A rise to 98.8 is forecasted.
*All times are GMT.
USD/JPY Technical Analysis
Dollar/ ¥ began the week with a rise above the 102 line (mentioned last week), before crashing. 100.66 held for some time, but the pair eventually fell even lower, to close at 100.44.
Live chart of USD/JPY:
[do action=”tradingviews” pair=”USDJPY” interval=”60″/]- Technical lines from top to bottom
108.60 capped the pair in 2008 and worked as support during 2006. 107.16 provided support in 2007 and later worked as resistance in 2008.
105.50 is above the round number of 105 and worked as resistance during 2008. It worked as support later in the year. Below, 104.60 slowed the pair’s rise in early 2008.
103.73 is the new multi-year high and is now the key line to a fresh upside move. 102.80 capped the pair in May 2013, and could work as the immediate pullback line.
The round number of 102 provided support for the pair towards the end of May 2013 and is minor resistance now.. The 101.44 line, which was the post crisis high seen in April 2009, is now critical support.
The crash low of 100.66 provides support before 100. The obvious number below is the very round number of 100 and would be closely watched on any drop. 98.90 capped the pair in June 2009 and serves as minor resistance.
A stronger line is the 97.80 line, which was a peak back in 2009 and was reached in April 2013. The pair stumbled below this line, which is getting weaker. The round 97 line worked as important support in May 2013.
The March 2013 peak of 96.71 is the next line, which now switches to support. 95.88 provided a temporary stop on the way up and was also the swing low on a fall during April. The round number of 95 is also watched by many and will remain critical support on a reversal.
I am bullish on USD/JPY
The correction of the dollar and the yen has been quite strong. Now that a new month begins, we could see the long term trend resume. The BOJ is deploying all measures to “calm the bond markets”, and in the US, it is becoming clear that QE tapering will happen this year, even though economic signs are mixed.
It is important to watch the 100 line – if this breaks, we could see a snowball effect. However, there are more chances that we will see a rise rather than a fall.
More about the yen: Abenomics will accelerate Japan’s descent into financial crisis
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 USD/CAD (loonie), check out the Canadian dollar forecast
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