USD/JPY Outlook June 10-14

USD/JPY showed some strong downward momentum as it fell about 300 points last week. The pair quickly dropped below the 100 line, and touched the 95 line before closing out the week at 97.53. Current Account and the BOJ Monetary Policy Statement are the major events this week. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.

The drop of the Nikkei index continues to push the pair to lower levels. As well, weak US employment numbers led to a broadly weaker dollar, and the yen took full advantage and posted sharp gains.

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

1. Current Account: Sunday, 23:50. Current Account is directly linked to currency demand, as a rising surplus indicates that there is a greater demand for Japanese yen by foreigners. The key indicator continues to register modest surpluses. The indicator posted a surplus or 0.34 trillion yen and the estimate for the upcoming release is slightly higher, at 0.39 trillion yen.
2. Final GDP: Sunday, 23:50. Japan’s GDP is a second-tier release, and is released each quarter. GDP bounced back in Q4 of 2012 with a 0.0% reading, after a disappointing Q3 reading of -0.9%. The markets are expecting a strong release for Q1, with an estimate of a strong 0.9% gain. If the indicator does meet expectations, it would be a strong indication that the Japanese economy is gaining strength and responding to Abenomics.
3. Consumer Confidence: Monday, 5:00. With the Japanese economy sputtering for years, it shouldn’t come as a surprise that consumer confidence has been weak. However, recent releases show some improvement, although the indicator remains well short of the 50-point level, which indicates optimism. The previous reading came in at 44.5 points, and the June estimate is similar.
4. Economy Watchers Sentiment: Monday, 6:00. This index is based on a survey in which respondents are asked to rate current economic conditions. Perhaps surprisingly, the index has been above the 50-point level since February, indicating optimism about the Japanese economy. The index came in at 56.5 points in the previous release, and little change is expected in the upcoming reading.
5. BSI Manufacturing Index: Monday, 23:50. This important manufacturing indicator is released on a quarterly basis. Five of the past six releases have been below zero, indicating a pessimistic outlook from Japan’s large manufacturers. Another reading in negative territory is expected, with an estimate of -2.1 points.
6. Monetary Policy Statement and BOJ Press Conference: Tuesday, Tentative. In the BOJ’s previous monetary policy statement, the BOJ stated that the monetary base would  increase by 60-70 trillion yen annually, as the BOJ pumps more money into the economy. Analysts will be waiting to hear the central bank’s take on the Japanese economy, which has shown some improvement.
7. Preliminary Machine Tool Orders: Tuesday, 6:00. This manufacturing indicator has not posted a gain since May 2012. The indicator came posted a sharp decline of 24.1% in May, and little change is expected in the upcoming reading.
8. Core Machinery Orders: Tuesday, 23:50. This indicator has been all over the map, making accurate predictions a difficult task. The indicator shined last month, jumping 14.2%. The markets are bracing for a sharp downturn, with a an estimate of -8.3%. Will the indicator surprise the markets with another strong performance?
9. CGPI: Tuesday, 23:50. With the Abe government declaring deflation to be Public Enemy No. 1, inflation indicators have been under the microscope. There was some good news from the corporate inflation indicator, which rose to 0.0% last month. Prior to this, the indicator had been in negative territory, indicating deflation, since April 2012. The estimate for the June reading stands at 0.7%, which would point to inflation creeping in to the Japanese economy.
10. BOJ Monthly Report: Wednesday, 5:00. This is a third-tier release, and has a muted impact compared to the monetary policy statement. Nevertheless, the markets will be looking for clues as to what moves the BOJ might take with regard to monetary policy.
11. Monetary Policy Meeting Minutes: Thursday, 23:50. The minutes provide details of the BOJ’s most recent policy meeting, and provide insights into the views of monetary and fiscal policymakers. A release which is more hawkish than expected is bullish for the yen.

*All times are GMT.

USD/JPY Technical Analysis

Dollar/¥ began the week with at 100.42 and touched a high of 100.72. It was all downhill from their, as the pair dipped to a low of 94.99, briefly testing support at the 95 line (discussed last week). The pair then moved higher, closing at 97.53.

Live chart of USD/JPY:

Technical lines from top to bottom

With USD/JPY posting sharp losses, we begin at lower levels.

104.60 is a strong resistance line. It 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. It has strengthened as the pair trades at lower levels. 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. Next is the all-important round number of 100, which the pair crashed through early in the week. 98.90 capped the pair in June 2009 and has also strengthened. We next encounter resistance at 97.80, which had served in a support role since early May. This is a weak line, and could see activity if the US dollar bounces back.

The round 97 line worked as important support in May 2013. USD/CAD barreled past this line late last week, but was unable to hold onto these gains, and this support level remains in place.

The March 2013 peak of 96.71 continues to provide 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 as the yen flexes its muscles, and will remain critical support on a reversal.

We next encounter support at 0.9406, protecting the 94 level. This is followed by 0.9277, which has held firm since April. The final support level for now is 91.19, which has not been tested since February.

I am neutral on USD/JPY

The correction of the dollar and the yen continued last week, as the yen pushed to levels not seen since early April. The yen got some help from a shaky Nikkei, and if the instability continues, the yen will reap the benefits. On the other hand, it is becoming clear that QE tapering will happen this year, even though economic signs are mixed.