USD/JPY Outlook Nov. 25-29

For the second straight week, USD/JPY  gained about 100 points, as the pair closed the week  above the  101 line.  This  week’s highlight is the BOJ Monetary Policy Statement. Here is an outlook on the major market-movers and an updated technical analysis for USD/JPY.

The dollar gained ground following a strong Unemployment Claims release. Other key US releases, such as housing and manufacturing numbers, missed their estimates, but the yen was unable to take advantage.

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

1. BOJ Monetary Policy Meeting Minutes: Monday, 23:50. The BOJ minutes provide a detailed record of the most recent policy meeting, in which BOJ maintained its current monetary policy. A report that is more hawkish than expected could lift the yen.
2. Retail Sales: Wednesday, 23:50. Retail Sales is considered the most important consumer spending indicator. The indicator shot up 3.1% in September, easily surpassing the estimate of 1.9%. The estimate for the upcoming release calls for another strong gain of 2.2%. Will the indicator meet or beat this prediction?
3. Manufacturing PMI: Thursday, 23:15. Manufacturing PMI has been steadily rising, and came in at a respectable 54.2 points in September. Recent readings have been above the 50-point level, indicating ongoing expansion in the manufacturing sector.
4. Household Spending: Thursday, 23:30. This indicator gauges consumer spending, a critical component of economic growth. Household Spending has looked weak in recent releases, but surprised the markets last month with a jump of 3.7%, a six-month high. This crushed the estimate of 0.7%. The markets are expecting another respectable gain in October, with a forecast of 1.2%.
5. Tokyo Core CPI: Thursday, 23:30. Inflation indicators have been pointing upwards thanks to the government’s radical monetary policy. Tokyo Core CPI, considered the most important inflation release, posted a 0.3% gain last month, just shy of the estimate of 0.4%. The markets are expecting a gain of 0.4% for the October reading, and if the indicator can beat the forecast, we could see the yen improve.
6. Preliminary Industrial Production: Thursday, 23:50. This indicator is an important gauge of manufacturing output and should be treated as a market-mover. The indicator bounced back last month with a respectable gain of 1.8%, but this fell short of the estimate of 1.8%. The markets are anticipating another strong release, with an estimate of 2.1%. Will the indicator meet or  beat this rosy prediction?
7. Housing Starts: Friday, 5:00. Housing Starts often posts gains in double digits, and the previous release came in at a sizzling 19.4%, easily beating the estimate of 12.6%. However, the estimate for the October release stands at just 5.5%. This is the lowest estimate we’ve seen since May. The indicator is a minor event, so it’s unlikely that this release will have a strong impact on USD/JPY.

*All times are GMT.

USD/JPY Technical Analysis

We begin with resistance at 105.70. This line was last test in October 2008.

This is followed by resistance at the round number of 104. This was a key line back in May 2008. At that time, USD/JPY was in the midst of a rally which saw the pair climb as high as 110.

102.50 was an important resistance line in late May but has not been tested since that time.

101.44 was the post-crisis high seen in April 2009, and has not been tested since mid-July. 100.85 saw activity in July as the dollar showed strength against the yen. If the US dollar continues to gain ground, this line could face some pressure.

100, a key level, was breached last week for the first time since September. It starts the week as weak resistance and could see activity early in thee week.

98.90 held firm as USD/JPY posted modest losses early last week. It has some breathing room as the pair trades above the 100 level.

97.80 continues to provide strong support. 96.59 has held firm since the first week in October. It marks the low point of a downward trend by the pair which started in late September.

The round number of 95 is a psychologically significant line. It has held firm since mid-June.

93.79 is our final support line. It marked the low point of a rally by USD/JPY which started in mid-June and saw the pair climb to the mid-101 range in July.

I am bullish on USD/JPY

The dollar is enjoying a solid run against the yen, closing the week with gains for the third straight week. Will the upward trend continue? The dollar shrugged off Janet  Yellen’s support for continued QE, and the possibility of a December taper could well help  the US dollar gain ground against the majors this week.