Dollar/yen remained very calm in a wild week in the markets. Will this narrow range trading continue? Retail sales, Household spending and Tokyo core CPI 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 a Big sigh of relief in Japan following Bernanke’ announcement of “Operation Twist” resulting in USD/JPY rises taming the high yen problem which threatens Japanese exports. Will this move help to further control the yen?
- CSPI: Monday, 23:50. Japan’s corporate services price index dropped 0.5 % in July on a yearly base following 0.8% decrease in the previous month indicating a small improvement in the manufacturing sector. A smaller drop of 0.4% is anticipated.
- Retail Sales: Wednesday, 23:50. Japanese retail sales increased by 0.7% in July from a year earlier following a revised increase of 1.2% in June indicating consumer spending is on a recovery path after the earthquake and nuclear crisis in March . a drop of 0.6% is expected now.
- Manufacturing PMI: Thursday, 23:15. Japanese manufacturing activity lost pace in August amid concerns about a strong yen and dropping demand from China reaching 51.9 in August following 52.1 in July. The main contributor to the rise was household demand rather than exports.
- Household Spending: Thursday, 23:30. Japanese household spending decreased by 2.1% in July but the tame drops signify that a recovery process is underway when a larger drop of 4.2% occurred in the preceding month. Another drop of 2.6% is expected now.
- Tokyo Core CPI: Thursday, 23:30. Core CPI for the Tokyo area slid 0.2% in August, more than the 0.11% drop predicted and following 0.1% decline in July. Analysts predict deflation will continue for the next coming months due to high yen and lower exports. A smaller drop of 0.1% is expected now.
- Prelim Industrial Production: Thursday, 23:50. Industrial production in Japan increased 0.6% in July following 3.8% increase in June. This reading was below expectations of 1.6% gain. A larger increase of 1.5% is forecasted.
- Housing Starts: Friday, 5:00. Housing starts in Japan jumped 21.2% in July from a year earlier growing demand before the end of government incentives. The reading was well above the 5.8% gain expected. A smaller increase of 4.6% is forecasted.
*All times are GMT
USD/JPY Technical Analysis
Dollar/yen remained in a tight range. It was initially supported by the 76.25 line (discussed last week) and was limited by the strong cap of 77. Later it went lower.
Technical lines from top to bottom
79.30 proved to be a persistent cap for dollar/yen, holding down recovery attempts. At these tight ranges, it remains far at the moment. An attempt to break higher resulted in another downwards leg. 78.50 provided some support before another drop, and is now a weak line of resistance.
77.85 was tough resistance when the pair made an attempt to make an upwards move higher in September. The round number of 77, remains a significant cap for the range trading that characterizes the pair .
Further below we have the swing record low of 76.25 which is still of importance, despite the move lower. The low record of 75.95 is the final frontier in charted territory.
Below, the round number of 75 is the next potential cushion and an area where the Japanese authorities will be keen to intervene.
I am neutral on USD/JPY.
While the Japanese economy is suffering, the role of the Japanese yen as a safe haven currency alongside the US dollar provides stability as the Swiss franc and gold are dropping after Bernanke’s move. The BOJ will likely intervene if the pair moves significantly lower.
- 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
- For the Swiss Franc, see the USD/CHF forecast.