BankForecast.com USD/JPY Weekly Forecast 04-08 April 2016

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Very disappointing Tankan survey data has been released during previous week, and came as a big surprise to the market. Tankan Large Manufacturers Index reaching level of 6 is on its lowest level for almost last three years, implying on not so favorable business conditions and possible future business contraction of manufacturing industry. Such a weak sentiment imposes a question whether we are going to see further easing of BOJ monetary policy during April meeting? Despite of negative sentiment, Yen strengthened against US Dollar during previous week, trading at 112. At the same time Japan equities were the one that suffered the most ( Bloomberg) from negative outlook and in line with it revised year-end profits.

US employment relatively strong figures released last week , had again fuelled market speculation on possible FED`s rate hike in the near future, supported by current futures pricing (Reuters). Current market expectations are 78% on December rate increase, while 54% is expecting it during September (CNBC). FED Chair Yellen confirmed last week that FED is currently much more concerned about general slowdown of the world economy, calling for much cautious US monetary measures ( Reuters).  March FOMC meeting revealed current focus of FEDs policy to be on side of recession rather than inflation (Bank Forecast – USD JPY weekly forecast), which increases the like- hood of rate hike to occur during second half of the year, in line with current market expectations.

The currency pair USD/JPY finished week at level  111.62.

FUNDAMENTALS WEEKLY UPDATE :  

Short review of major fundamentals released during previous week is following:

Monday, March 28, 2016 :

  1. US Advance Goods Trade Balance: results for February show further increase of US trade deficit to $-62.864b, down from $-62.228b for January and $-61.5b as of December. Results are also below market expectations of -62.2b.
  2. US Personal Income : results for February show modest easing in pre-tax household income to 0.2% in February, down from 0.5% from previous month, but still above market expectations of 0.1%.
  3. US Real Personal Spending : results for February expose modest increase to 0.2%, in relation to previous month 0.00%.
  4. US Personal Consumption Expenditure Core (YoY) : results for February show no change from previous month figure. Personal expenditure on a year-on-year basis is 1.7%, modestly below market expectation of 1.8%.
  5. US Pending Home Sales (YoY) : results for February show significant improvement in pending home sales to 5.1%. In January this indicator has been at -1.5%.

Tuesday, March 29, 2016 :

  1. Japan Jobless Rate : results for February show minor increase in Japan jobless rate to 3.3%, related to previous months 3.2%. Market was expecting no change from previous month.
  2. Japan Household Spending (YoY) : results for February show quite positive development in Japanese household spending with 1.2% increase on a year-on-year basis, and significantly above results for previous month of -3.1%. It was also surprise for the market considering concensus of -1.9%.
  3. Japan Retail Trade (YoY) : although results for February exposed modest increase in consumer confidence for Japan retail trade of 0.5% on a year-on-year basis, this figure is still below market expectation of 1.6%, but better than result for previous month of -0.2%.
  4. Japan Large Retailers Sales : results for February show increase in large retail sales of 2.2% in relation to 0.9% for previous month, and above market expectation of 1.6%.
  5. Japan Small Business Confidence : results for March show modest increase in small business confidence of 48.8, which is improvement from previous months 47.9, but still below market expectation of 49.0.
  6. US Consumer Confidence : results for March expose improvement of consumer confidence to 96.2 in relation to previous months 94.0. Market was not expecting any change in indicator.

Wednesday, March30, 2016 :

  1. Japan Industrial Production (YoY), preliminary results for February show modest slowdown in Japanese industrial production to -6.2% compared to previous month 3.7%. However, comparing to same period of previous year industrial production is down for -1.5% compared to -3.8% released for previous month.
  2. Japan Vehicle Production (YoY) : results for February of -6.9% show continuing down trend in vehicle production on a year-on-year basis, considering that data released for previous month also exposed decrease of -5.8% y/y.

Thursday, March31, 2016 :

  1. Japan Buying Foreign Bonds, in Yen, (March 25th) : data show modest decrease in capital inflow of 1164.1b, compared to 2276.9b for previous week.
  2. Japan Buying Foreign Stocks, in Yen, (March 25th) : data show modest capital outflow of -30.0b, compared to 301.7b for previous week.
  3. US Initial Jobless Claims have unexpectedly increased by 11K to 276K during previous week, beating market expectation at 265K.

Friday, April 01, 2016 :

  1. Tankan Large Manufacturers Index : results for first quarter decreased to 6 from previous month 12 and below market expectation of 8, which represents lowest level during three previous years. Very negative for Japan`s economy.
  2. Tankan Non-Manufacturing Outlook : results for first quarter for non-manufacturing industry show modest decrease to 17 from previous quarter 18, and also below market forecast of 20.
  3. Nikkei Japan PMI Mfg : March forecast show no change from previous result of 49.1.
  4. US Unemployment Rate : results for March show increase in US unemployment figures to 5% , compared to previous month 4.9%, and up for 0.1% from market consensus.
  5. US Change in Non-farm Payrolls : for March is 215K, 242K previously reported. Result is better than market consensus at 205K.
  6. University of Michigan Confidence : forecast for March is 91.0 slightly above 90.0 previously released.

 

FORECAST FOR THE COMING WEEK

Below are some of the significant indicators to watch during next week:

Fundamentals April 04-08

Two major events that market will watch closely during next week are release of Minutes of the FOMC March meeting on Wednesday and FED Chair Yellen speak at panel discussion in New York as of 7th April, accompanied by Ben Bernanke, Alan Greenspan and Paul Volcker.

Japan Labor Cash Earnings: results for February will be released on a year-on-year basis. Previous released result showed increase of 0.4% of Japan`s employees pre-tax earnings. Increase in earnings would lead to increase consumption and finally inflation. However, taking into account other indicators, there should not be any surprises.

US Trade Balance : results for February will be released. Very important component of US Balance of Payments. Previous results show continuous deficit increase, reaching -45.68b in January.

Japan Trade Balance –BOP basis : results for February will be released. Quite important to watch for Japan economy considering their export-orientation. Previous result stands at +411.0b Yen.

Japan Consumer Confidence Index : results for March will be released, showing confidence of Japanese households for consumption. Previously released indicator stands at 40.1.

 

 

 

 

 

USD/JPY Technical Analysis

During previous week we have seen down trend in currency pair following  move from 113.07 to 111.6, where USD/JPY finished week. Long term resistance level at 110.8 has not been tested.

Since February this year currency pair is moving in channel  with support level at 110.8 and resistance at 114.

Break of short term 112 and 113 resistance would lead currency pair to long term resistance at 114.

On a longer term basis, break of 114 resistance would lead to new highs at 116.3.

Break of 112 as short term support level would lead to testing long term support at 110.8.

Relative Strength Index over 14-day period is currently slightly below 40 implying that current ( down) trend might soon be over, and that trend reversal might be possible.

Graph 04-08- April

 

 

 

 

 

 

 

 

 

 

 

USD/JPY daily graph with support and resistance lines, RSI and MA

 

USD/JPY MARKET FORECAST

Forecast made by Bank of Scotia as of 31st March 2016 is bullish on currency pair and is as follows:

Bank of Scotia 04-08 April

 

 

Full report can be found under : Bank of Scotia Foreign Exchange Outlook

As per Trading Economics forecast model, based on calibrated autoregressive integrated moving average, expectations are also on bullish side until the year end. Latest forecasted figures, as of 02st  April are following:

Trading Economics 04-08- April

 

 

Full report can be found at: Trading Economics

Analysts at Barclays bank are expecting to see currency pair down to levels of 100 in next quarters : Bank Forecast.

Morgan Stanley expects USD/JPY to reach 117 in the near future : Bank Forecast.

I am long-term bullish on USD/JPY

During previous week we have seen some very disappointing data on Tankan Large Manufacturers Index reaching lowest level for almost last three years. It indicates on possible future business contractions in manufacturing industry, which is not quite favorable for Japan economy considering its reliance on exports. In this sense, it might be expected further easing of BOJ monetary policy quite soon. On the other side, any significant move in FEDs policy is not to be expected until second half of the year, as per market expectations and in line with FEDs concerns focused more on global slowdown rather than US inflation.

Technicals are showing short term down trend from the week start. After reaching resistance level at 113, currency pair reversed trend and finished week testing short-term support at 111.6. Since February USD/JPY is moving in channel 110.8-114, and it is quite possible that we will see testing of long term resistance at 110.8 during next week before market reverse move to the up side.

With Relative Strength Index currently slightly below 40 I think that last week`s trend might soon be over . I still stay long-term bullish on USD/JPY.

 

 

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