USD/JPY Outlook June 17-21

The Japanese yen continues to be red-hot, and has posted sharp gains for the second straight week.USD/JPY dropped over 400 points, as the pair dipped below the 94 level before closing the week at 94.06. There are only four releases in the upcoming week, highlighted by a speech by BOJ Governor Haruhiko Kuroda. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.

There was some solid Japanese releases last week, as Current Account and Manufacturing Production were very sharp and well  above expectations. As well, the yen benefited from a broadly weakened dollar.

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

1. Tertiary Industry Activity: Sunday, 23:50. This indicator measure the change in spending by Japanese businesses. The indicator has been alternating between positive and weak readings in 2013, and market forecasts have often been off the mark. The May release was the indicator’s weakest showing this year, with a decline of 1.3%. The markets are expecting a stronger reading in June, with an estimate of a modest gain of 0.2%.
2. Revised Industrial Production: Tuesday, 4:30. Revised Industrial Production has been steadily improving, and the indicator climbed a respectable 0.9% in the May release, easily beating the estimate of 0.2%. The markets are expecting better news from the indicator in the upcoming reading, with an estimate of 1.7%. Will the indicator beat this rosy prediction?
3. Trade Balance: Tuesday, 23:50. Japan’s trade balanc3e continues to improve, but the country has not rung up a trade surplus in over two years. The May reading produce a smaller deficit of JPY 0.76 trillion, but this was above the estimate of a JPY 0.63 trillion deficit. The markets are not expecting the deficit to widen slightly in June, with a forecast of -0.89 trillion yen.
4. BOJ Governor Haruhiko Kuroda: Friday, 6:35. Along with Prime Minster Abe, Kuroda has engineered Japan’s extreme easing policy, which has seen the yen plummet. So any statements by the BOJ Governor can be market-movers. Kuroda will speak at a bank conference in Tokyo.

*All times are GMT.

USD/JPY Technical Analysis

The yen picked up where it left the week before, posting more sharp gains against the dollar. USD/JPY began the week at 98.36 and quickly touched a high of 99.28. It was all downhill from there, as the pair plunged to a low of 0.9379, before closing the week at 94.06, an important support level (discussed last week).

Live chart of USD/JPY:

Technical lines from top to bottom

With USD/JPY continuing to drop, we start at lower levels.

There is important resistance at the all-important round number of 100. USD/JPY broke through this pair in early June, and the line has strengthened as the pair continues to push to lower levels. 98.90 capped the pair in June 2009 and has also strengthened.

Next, 97.80, had served in a support role from early May until last week. It has reverted to a strong resistance line.

The round 97 line also worked as important support in May. The pair easily broke through this line as the yen surged, and it is providing resistance.

The March 2013 peak of 96.71 also failed to stem the tide, as the pair broke this support line. Next is the round number of 95, which many had expected to provide tougher support for the pair. It has reverted to a resistance line.

USD/JPY is testing 0.9406, where it ended the week. This line had held as a support line since April, protecting the 94 line. Will it also be swept away this week?

Below, 0.9277 has held firm since April. It is followed by 91.19, which has not been tested since February.

Next is the critical line of 90. This psychologically important support level has remained intact since January. The final support line for now is at 88.13.

I am bullish on USD/JPY

The yen has surged in June, gaining a remarkable 600 points so far this month. The yen continues to trade at levels not seen since early April. After such strong gains by the yen in such a short period, we could be due for a correction. As well, it is becoming increasingly clear that QE tapering will happen this year, which would be dollar-positive. So if the US produces some strong US numbers, these would point to a stronger recovery and fuel expectations about QE being scaled back.

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