BankForecast.com USD/JPY Weekly Forecast April 25-29 2016

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Although fundamentals were promising relatively calm week ahead, Friday brought strongest weakening of Yen for last year and a half, finishing week at level of 111.6 against US Dollar. Such market reaction was caused by some statements from BOJ official of possible further stimulus measures that would be imposed during next BOJ meeting on April 27-28th. Possible new stimulus would include further decrease of already negative interest rates on bank reserves and further providing support to banks though offering  loans with negative rates. It is quite unclear whether such measures would give positive results, considering that almost all leading world economies, including Japan, who went to negative interest rate zone, are having the same issue which is high money supply but without demand. During last week we have also seen some reaction from BOJ officials and Governor Kuroda regarding rising Yen that is currently not welcomed considering its potential negative impact on BOJ stimulus measures. This topic is also scheduled for April  BOJ meeting, so it is up to be seen whether BOJ measures will be adjusted to cope with raising Yen.

Possible FED rate hike, for a long time awaited by market, is most probably not going to occur during April FOMC meeting, as per market expectations. Although FED has scheduled two rate hikes for this year, many experts are skeptical whether such course of action is going to actually occur, putting much more probability on only one increase during second half of this year, most probably during December. Relatively weak results on US economy since the beginning of this year followed with world recession, provide support for FOMC to delay further rate increase. In line with such expectations, market is currently much more set to hear FED`s view on economic growth progress, which would provide more insights on potential future actions from FED.

The currency pair USD/JPY finished week at level 111.64.

 

FUNDAMENTALS WEEKLY UPDATE :  

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

Tuesday, April 20, 2016 :

  1. US Housing Starts (MoM): results for March show modest decrease in new housing starts to 1089K from previously reported 1178K and below market expectation of 1170K.

Wednesday, April 21, 2016 :

  1. Japan Merchandise Trade Balance Total: results for March show significant improvement in Japan trade balance of Yen755.0b compared to Yen242.2b previously reported. However, figure is below market consensus of Yen819.1b.
  2. US Existing Home Sales (MoM): results for March show modest improvement in existing home sales of 5.1% compared to previous months -7.1%. Figure is also above market expectation of 3.5%.

Thursday, April 22, 2016 :

  1. Japan Buying Foreign Bonds (April 15th ) data show modest slowdown in capital inflow of JPY 844.7b, compared to JPY 1176.1b for previous week.
  2. Japan Buying Foreign Stocks (April 15th ) data show modest increase in capital inflow of JPY503.4b compared to JPY206.1b during previous week.
  3. US Initial Jobless Claims: results show modest decrease in jobless claims to 247K from 253K during previous week, and below market expectation of 265K.
  4. US House Price Index (MoM): results for February show no change in housing prices from previous month of 0.4% which is also in line with market expectations.

Friday, April 23, 2016 :

  1. Nikkei Japan PMI Mfg: preliminary results for April show modest decrease in PMI index to 48.0 compared to 49.1 reported previously. Figure is also below market expectation of 49.5.
  2. Japan Tertiary Industry Index (MoM): results for February show modest slowdown in Japan services industry to -0.1% on a monthly basis, compared to 0.7% reported previously. Figure is above market consensus of -0.5%.
  3. US Markit Manufacturing PMI: preliminary results for April show modest decrease in PMI index to 50.8 from 51.5 previously reported and below market expectations of 52.0.

 

FORECAST FOR THE COMING WEEK

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

USDJPY fundamentals 25-29Apr

There are two major events that are scheduled for the same week. Firstly, FOMC meeting is scheduled for Wednesday where rate decision is going to be one of the meeting main topics. Considering that market is not anymore on the side of rate hike during April, any comments from FED related to current state of US economy and potential future actions from FED might trigger market reaction. Next day, BOJ meeting is going to occur, again with BOJ policy rate in focus and further stimulus measures. Currently imposed measures by BOJ did not provide expected results and in this sense there is a huge possibility that further reactions from BOJ might be seen during this meeting.

Japan Small Business Confidence: results for April will be posted showing current sentiment of Japan small business. Previously this indicator was standing at 48.8.

US Durable Goods Orders: preliminary results for March will be posted showing current state of orders placed for a durable goods. Previously this indicator was standing at -3.0% showing slowdown in orders.

US Consumer Confidence: very important indicator for US economy showing confidence of consumers for business conditions, employment and personal income. Previously was standing at 96.2.

Japan All Industry Activity Index: results for February will be posted showing changes on a monthly basis of Japanese economy production. Previously posted result was standing at 2.0%.

US Advance Goods Trade Balance: results for March will be posted. Result for February was -$62.864b.

Japan Jobless Rate: results for March will be posted. Result for previous month was 3.3%.

Japan National Consumer Price Index: result for March will be posted on a yearly basis. Important indicator to watch considering BOJ`s set target for CPI at 2% by the year end. CPI in February was 0.3% y/y.

 

Japan Retail Trade: result for March will be posted on a yearly basis. Previously this indicator was standing at 0.5%.

US Gross Domestic Product: annualized results for first quarter will be posted, showing output of US economy. As of the year-end US GDP was at 1.4%.

US Personal Consumption: annualized results for first quarter will be posted. Previously indicator was standing at 2.4%.

 

USD/JPY Technical Analysis

After testing downside short term support level at 108,6, currency pair revert trend to the up side finishing week reaching short term resistance at 111.56.

Break of 111.56 resistance would lead currency pair to test new levels at 112,33 and further to 113.7.

Break on the opposite side would lead to long term support at 110.8 and further to 109.3.

Relative Strength Index over 14-day period is at levels above 50 and does not provide clear indication on potential trend reversal.

USDJPY graph 25-29Apr

 

 

 

 

 

 

 

 

 

 

 

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

USD/JPY MARKET FORECAST

  • National Australia Bank Ltd sees currency pair at 113 after BOJ`s April meeting. (Bloomberg).
  • 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.
  • Deutsche bank said it is much more likely for USD/JPY to fall below 110 in the next several months : Bank Forecast.
  • Barclays Capital sees currency pair at 106.65 : Bank Forecast.

 

For next week I am bullish on USD/JPY

During previous week we have seen strong move on market bringing US Dollar to the level of 111.6 from 109.2, caused by unnamed BOJ officials noting possible further stimulus measures that would be taken on next BOJ meeting. Anyhow, next week is going to be one of the rare five-star weeks on financial markets, considering that both BOJ and FOMC meetings are going to be held. Although market is not expecting to see any rate increase from FED during April meeting, it is quite possible that some new actions from BOJ might occur. In addition, during next week US GDP and Japan CPI figures will be released, providing more insights in current state of US economy and weather targets set by BOJ are on the track to be reached.

After testing downside short term support level at 108,6, currency pair revert trend to the up side finishing week reaching short term resistance at 111.56. Break of 111.56 resistance would lead currency pair to test new levels at 112,33 and further to 113.7, while on the opposite side, long term support at 110.8 might be tested. RSI above 50 does not indicate that market has reached overbought side.

I am expecting quite interesting week on financial markets with possibility that currency pair might shortly test long term support at 110.8 before reverting back to 111.6 and 112.33. Also, on a long run I am still bullish on USD/JPY.

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