USD/JPY Outlook June 24-28

FTS-Forex Trading: The US dollar finally flexed some muscle this week, and pushed down the yen about 350 points. The pair closed the week just above the 97 level, at 97.01. There are several major releases, this week, including Tokyo CPI and Household Spending. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.

The US dollar was broadly stronger last week, thanks to remarks by the US Federal Reserve that it plans to taper QE during 2013. The yen also took a hard hit, reversing its recent gains against the dollar.

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

1. CSPI: Monday, 23:50. Japanese inflation numbers continue to be under the market’s microscope, as the government has embarked on an aggressive monetary easing  program in order to stamp out deflation and increase economic activity. CSPI, which measures corporate inflation,  has not responded as hoped, as only one reading has been above the zero level this year, as deflation continues. The previous release posted a decline of -0.4%, missing the estimate of -0.2%. The markets are expecting better news in the June release, with an estimate of a o.1% gain.
2. All Industries Activity: Thursday, 4:30. This indicator measures the change in the amount of goods and services purchased by Japanese businesses. Although the indicator has shown sharp movement from one month to the next, the markets have done a good job of providing accurate forecasts. The indicator posted a decline of -0.3% last month, but the markets are expecting a turnaround in the June release, with an estimate of 0.5%.
3. Manufacturing PMI: Thursday, 23:15. Manufacturing PMI is based on a survey of purchasing managers who are asked to rate conditions in the manufacturing industry. The index has been climbing slowly but steadily all year, and has been above the 50-level, which indicates expansion, since the February release.
4. Household Spending: Thursday, 23:30. Consumer spending is one of the most important economic indicators, as it comprises a majority of Japan’s economic activity. The indicator has been quite erratic, making accurate estimates a difficult task. Household Spending dropped 1.5% in the May release, and no change is expected in the upcoming reading.
5. Tokyo Core CPI: Thursday, 23:30. This index is considered the most important Japanese inflation indicator, and should be treated as a market-mover. The index posted a modest gain of 0.1% in the May reading, the first sign of inflation in almost two years. Will the index post another reading above zero? The markets are expecting so, with an estimate of 0.2% for the June release.
6. Preliminary Industrial Production: Thursday, 23:50. This indicator has been very weak, with five consecutive declines until a gain of 1.8% last month. This surprised the markets, which had forecast a decline of -1.8%. The estimate for the June release is stands at -1.7%. Will the indicator again surprise the markets with a strong reading?
7. Retail Sales: Thursday, 23:50. This important consumer spending indicator has looked dismal, with four straight declines. The estimate for the June reading is a small gain of 0.1%, which would be welcome news from the hard-hit indicator.
8. Housing Starts: Friday, 5:00. With all the problems facing the Japanese economy, Housing Starts continue to post strong gains. The indicator has beaten the estimate for the past three releases. Housing Starts gained 5.8% in the May reading, and the markets are expecting an even stronger release this time around, with an estimate of 6.3%.

*All times are GMT.

USD/JPY Technical Analysis

The yen started the week at 94.33. After touching a low of 94.23, USD/JPY roared higher, climbing to a high of 98.29. The pair closed the week at 97.90, as the resistance line of 97.80 has reverted to a support role (discussed last week).

Live chart of USD/JPY:

Technical lines from top to bottom

With USD/JPY posting sharp gains, we start at higher levels. The pair faces resistance at 101.52, which has held firm since late May. This is followed by 100.85.

Next, there is resistance at the all-important round number of 100. USD/JPY broke below this line in early June as the yen gained strength.. 98.90 capped the pair in June 2009 and is the next line of resistance.

Next, 97.80 has seen a lot of action in June, and has reverted to a support role. This is a weak line, and could be tested early next week.

The round 97 line also worked as important support in May and is back providing support. Given the volatility we continue to see from the pair, it cannot be considered a strong line.

The March 2013 peak of 96.71 is providing strong support. Next is the round number of 95, which was breached early last week as USD/JPY surged upwards.

0.9406 was providing weak support at the start of last week, but has now strengthened as the pair trades at higher levels.

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.

We are bullish on USD/JPY

Until last week, the yen owned June and posted outstanding gains against the US dollar. Last week’s correction pushed the pair to the 98 line, as the broadly stronger dollar rebounded sharply. The fallout from the QE announcement may not be over, and we could see the pair move closer to the 100 level.