USD/JPY Outlook July 1-5

The US dollar posted modest gains against the Japanese yen, as the critical 100 level is again within striking distance. The pair closed slightly above the 99 level, at 99.12. This week’s highlights include the Tanken indexes as well as a speech from BOJ Governor Haruhiko Kuroda. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.

There was some news to cheer in both the US and Japan last week. US releases looked solid for the most part, notably housing and manufacturing numbers. In Japan, manufacturing numbers were also strong, and inflation indicators are finally pointing upwards, as some inflation begins to creep into the economy.

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

1. Tankan Manufacturing Index: Sunday, 23:50. This quarterly indicator is based on a survey of large manufacturers, who are asked to rate general business conditions. The index has been in negative territory, which indicates worsening conditions, since 201. Q1 for 2013 came in at a weak -8 points. However, the markets are  expecting much better news from Q2, as the estimate stands at 3 points.
2. Tankan Non-Manufacturing Index: Sunday, 23:50. This index surveys large businesses outside of the manufacturing sector, and has looked much stronger than the Tankan Manufacturing Index, posting continuous releases above zero, which indicates improving conditions. The index came in at 6 points in Q1, missing the estimate of 8 points. However, the markets are  expecting a much improved release for Q2, with an estimate of 12 points. Will the index meet or beat this rosy prediction?
3. Monetary Base: Monday, 23:50. As part of its aggressive monetary easing policy, the BOJ continues to pump more funds into the Japanese economy. Monetary Base continues to grow from month to month. The indicator pointed to an increase of 31.6 % in the June release and the forecast for the upcoming release stands at 41.2%.
4. Average Cash Earnings: Tuesday, 1:30. This indicator has been alternating between releases above and below zero in 2013. The previous release came in at 0.3%, missing the estimate of 0.6%. The markets are hoping that this pattern ends, as the estimate for the July release stands at 0.6%, which would mean two consecutive gains.
5. 10-year Bond Auction: Tuesday, 3:45. Yields on Japanese 10-year bonds continues to remain quite low. The average yield in the June auction came in at 0.86%, up from 0.60 % in the previous release.
6. BOE Governor Haruhiko Kuroda Speaks: Thursday, 00:30. Analysts will be hoping for some clues as to the BOJ’s future monetary policy when Governor Haruhiko Kuroda addresses a meeting of bank managers in Tokyo. A speech which is more hawkish than expected is bullish for the yen.
7. 30-year Bond Auction: Thursday, 3:45. Yields for 30-year bonds have been rising over the past several releases. The average yield for the previous auction came in at 1.87%. Will yields rise over 2% in the upcoming auction?
8. Leading Indicators: Friday, 5:00. This index is based on 11 economic indicators, but is a third-tier release since most of the indicators have been previously released. The index recorded a reading of 99.3% in the previous release, and the markets are expecting lower reading of 96.3% in July.

*All times are GMT.

USD/JPY Technical Analysis

USD/JPY started the week at 98.39. After touching a low of 96.96, the pair climbed higher, touching a high of 99.45. The pair closed the week at 99.12, as 98.90 has reverted to a support role (discussed last week).

Live chart of USD/JPY:

Technical lines from top to bottom

With the yen continuing to lose ground, let’s take a look at some resistance lines above the 100 level.

We start with resistance of 103.85. This line has remained intact since October 2008.

102.52 was a high point as the pair started a downward trend in late May which saw the dollar drop below the 94 level.

Next is 101.50, which has held firm since late May. This is followed by 100.85.

The round number of 100 is a psychologically significant resistance level. USD/JPY broke below this line in early June as the yen gained strength.

USD/JPY is receiving support at 98.90. This line capped the pair in June 2009 and is providing weak support. It could see more action early this week.

97.80 has seen a lot of action in June, and continues in a support role. This line was briefly breached as the pair dropped early in the week, but remains intact.

The March 2013 peak of 96.71 is providing support. Next is the round number of 95, which has strengthened as the pair trades at higher levels.

The final support line for now is at 0.9406.

I am neutral on USD/JPY

The US dollar remains strong, having benefited from speculation that QE will  be tightened,as well as some impressive releases last week. If the dollar can maintain its momentum, we could see a run towards the 100 level. At the same time, Japanese data has shown improvement, and if the Tanken indexes have a good showing, we could see the yen show some strength.