USD/JPY continued its surge higher and hit fresh highs. Without a pullback, can the pair continue higher? The rate decision and BOJ governor Haruhiko Kuroda’s speech are the main market-movers this week. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.
Last week The Japanese economy enjoyed firm growth in the first quarter of 2013, rising 0.9% in January-March, the quickest growth in a year. Shinzo Abe’s radical monetary policy is finally bearing fruit. Deflation is improving and the yen is weakening. Furthermore, Japanese core machinery orders edged up 14.2% in March beating forecasts for a 3.1% growth, the fastest growth in 8 years. In addition, also the BOJ contributed with an immediate plan to “calm the bond markets” and injected more money. In the US, economic indicators are not so good, but the dollar certainly has a reason to rise. Let’s Start:
Updates: Japanese economy minister Akira Amari said that “excessive JPY gains have been corrected a lot” and that ” it’s the government’s responsibility to “minimize” that effect”. USD/JPY dropped as low as 102 before rebounding, and trades around 102.40, far off from the highs of 103.30 seen on Friday. USD/JPY extended its fall on the not-enough hawkish statements from Evans, an FOMC member, and is at 102.25. All Industries Activity dropped from 0.6% to -0.3%. This was a sharp drop, but matched the market forecast. Japanese Trade Balance will be released later on Tuesday. The markets are expecting a lower deficit. Japan will release a Monetary Policy Statement on Wednesday. USD/JPY has edged higher, and was trading at 102.81. USD/JPY suffered from dollar weakness that followed two speeches from FOMC members. Without a date on tapering QE, the dollar found it hard to rally. The BOJ saw some improvement in Japan, but made no policy changes. The pair is now awaiting Bernanke who testifies in Washington. The pair made an attempt to rise, but met resistance at 103. And: Here is how to trade the US Existing Home Sales with USD/JPY. US existing home sales came out at 4.97 million, within expectations. Ben Bernanke triggers a huge drama, sending USD/JPY to new multi-year highs: at first, he stated that it would be premature to withdraw stimulus as this would hurt the recovery, and the USD dropped. However, when asked, Bernanke mentioned that the Fed could taper, and the dollar rallied hard. USD/JPY fell under 102.70 and then leaped 90 pips and peaked at 103.60, above the previous high of 103.30 seen last week. Update May 23: USD/JPY crashes with the Japanese stock market. The stock sell off that began in New York extended to Tokyo. Given the correlation between Japanese stocks and USD/JPY, we now see the pair just above 102. Minutes of the Bank of Japan’s most recent policy meeting indicated that the BOJ was not making any changes to its monetary policy. The central bank plans to double the supply of money in the economy within two years, which involves injecting JPY60 – 70 trillion yen a year into the economy. The BOJ released its monthly report earlier on Thursday, and BOJ Governor Haruhiko Kuroda will address a conference in Tokyo on Friday. The Japanese stock market has taken a dive, losing 6.0% after Bernanke’s testimony. USD/JPY continues to drop, and fell below the 102 line. The pair was trading at 101.89. The Japanese stock market twisted and turned, and so did USD/JPY, which is still trading in wide range, between 101 and 102.40. After some positive US surprises on Thursday, more good news from durable goods orders could keep the pair up.
USD/JPY is unable to ride on better than expected durable goods orders in the US. It is now losing the 101 line. Will it challenge the very round 100 line? Reminder of a technical analysis: USD/JPY Advances Bullish Trend but Due for Correction.
USD/JPY ends the week at 101.30, after a crazy week. The outlook for the week beginning on May 27th will be published soon.
- All Industries Activity: Tuesday, 5:30. Japan’s all industry activity improved in February, rising by 0.6% after a 1.6% fall in January. The expansion occurred mainly due to a recovery in tertiary activity. The increase was contrary to market forecast of a 0.6% decline. On a yearly basis, all industry activity dropped 2.5% in February compared to a 0.7% fall in the previous month. A drop of 0.3% is expected now.
- Trade Balance: Wednesday, 0:50. The March seasonally adjusted trade balance deficit reached Y922 from Y1.09 billion deficit in the previous month. The 1.2% drop in deficit occurred due to a rise of 1.6% in exports from February and 2.4% on the year. The unadjusted merchandise trade deficit was a smaller than expected reaching Y362.4 billion from a year ago. An improvement to -0.61T is forecasted.
- Monetary Policy Statement and BOJ Press Conference: Wednesday. The Bank of Japan kept monetary policy unchanged in April, in line with market forecast, following exceptional stimulus measures declared earlier that month to meet the 2% inflation rate target in two years. The BOJ switched its policy target from the overnight call rate to base money, a broad measurement of the amount of money the central bank pumps into the economy. No big change is expected this time, as the ambitious decisions from the important April 4th meeting are still being digested by the markets.
- BOJ Monthly Report: Thursday, 6:00. The Bank of Japan announced an unprecedented decision to inject about $1.4 trillion into the economy in less than two years. The new Governor Haruhiko Kuroda said the monetary base would nearly double to 270 trillion yen ($2.9 trillion) by the end of 2014.
- Haruhiko Kuroda speaks: Friday, 3:55. BOE Governor Haruhiko Kuroda will speak in Tokyo. He may talk about the positive developments in Japan’s economy over the recent month and about the new monetary policy. His words can cause volatility in the markets.
*All times are GMT.
USD/JPY Technical Analysis
Dollar/¥ began the week holding above the 101.44 line (mentioned last week). It then climbed and marked a top at 102.80. After a long struggle with this line, the pair finally made a breakout, rising above 103 and closing at the high level of 103.21.
Live chart of USD/JPY:
- Technical lines from top to bottom
We start from higher ground once again.: 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.
103.50 is a strong line that worked as support for the pair in July and September 2008 and is a key to any strong upside move. 102.80 capped the pair in May 2013, and could work as the immediate pullback line.
101.80 worked as a cushion for the pair in May 2013, and it is minor support now. The 101.44 line, which was the post crisis high seen in April 2009, is now critical support.
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 temporarily turn from bullish to neutral on USD/JPY
The long term direction of the pair remains up: the extreme monetary and fiscal policies coming from Japan are likely to push the yen lower across the board. In the US, the fiscal tightening and the hints about unwinding QE as soon as this summer can boost the dollar across the board.
However, forex trading is usually not a one way street. After the big moves in the past two weeks, we could see some consolidation, at least a temporary one. It is impossible to call a top or a bottom, but perhaps we will get a pause.
- USD/JPY Advances Bullish Trend but Due for Correction – by James Chen
- USD/JPY Technical Update: No Pullback So Far – Where Next? – by Nick Simpson
- An end to QE and what it means for Forex – by Justin Pugsley, about which currencies are set to gain and which to lose.
- 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.
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