BankForecast.com USD/JPY Weekly Forecast March 21-25 2016

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USD/JPY forecast March 21-25.

Focus of the third week of the March had been on Central banks concerns regarding recessions and economy slowdowns. During previous week we have seen ECB further deposit rate cut to -0.4%, while week-end was marked with FED`s revised interest rate policy and cut of GDP projections for this year, which moved US currency to five-months low. Although Bank of Japan left interest rates unchanged, there are some announcements from BOJ Governor Kuroda that rate cuts are “theoretically” possible, mentioning level of minus 0.5%.

Regardless of market expectations and initial plan on four rate increases during this year, FED was again reluctant to increase interest rates on latest FOMC meeting, held on Wednesday, revising possible rate hikes to only two(Reuters). In addition, FED`s GDP estimate for this year had been also changed from initial 2.4% to 2.2% (CNBC) signaling on modest slow down of US economy.  Coping with recession rather than inflation became main focus of FED policy evidenced by latest FED testimony. Such course of action caused strong market reaction, pushing the US dollar to five-months low against all major currencies. On the positive side such course of action supported US equities market, but still the major question among market analysts is whether the Dollar rally is over or we can expect another one soon?

Major event during previous week, providing significant insight on current state of Japan economy had been Bank of Japan Monetary Policy Statement and post policy meeting press conference held by BOJ Governor Kuroda. Monetary policy easing through negative interest rates, aimed to boost Japan economy did not gave significant results and has been heavily criticized by both banks and citizens (Reuters) . Governor Kuroda expressed readiness for further BOJ actions, which could include even lower interest rates “theoretically” to levels of minus 0.5%.  Although there are few other measures at disposal to BOJ, like boosting monetary base or purchases of riskier assets, the Minutes reveals most likely future BOJ move toward interest rates push ( Bloomberg ).

The currency pair USD/JPY finished week at level  111.55.

FUNDAMENTALS WEEKLY UPDATE :  

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

Tuesday, March 15, 2016 :

  1. BOJ Monetary Policy Statement, provided significant insight on current state of Japan economy and potential future BOJ actions
  2. BOJ Basic Balance Rate : no change – current level at 0.10%
  3. BOJ Macro Add-On Balance Rate : no change – current level 0.00%
  4. BOJ Policy Rate : no change – current rate -0.10%
  5. US Advance Retail Sales (MoM): results for February are still on negative side of -0.1% while previous month were -0.4%.

Wednesday, March 16, 2016 :

  1. US Consumer Price Index (YoY): results for February are exposing modest easing in US inflation to 1.0% in February compared to 1.4% for previous month.
  2. US Consumer Price Index excluding Food and Energy (YoY): results for February show relatively high core inflation of 2.3% ( 2.2% previous month).
  3. FOMC meeting : The most important event during previous week. Revised monetary policy and growth projections devalued US currency.

Thursday, March 17, 2016 :

  1. JPY Merchandise Trade Balance Total : results for February are showing modest easing of Japanese economy with Yen 242.8 billion compared to Yen648.8 billion for previous month
  2. JPY Adjusted Merchandise Trade Balance: excluding services, trade balance for February was Yen 166.1 billion compared to Yen 73.2 billion for previous month
  3. US Current Account Balance: in Q4 account balance was Usd -125.3 billion, slightly better than in previous period of Usd -129.9 billion
  4. US Initial Jobless Claims: there had been 265K new jobless claims in March, compared to 258K for previous month

Friday, March 18, 2016 :

  1. US University of Michigan Confidence: in March indicator was 90.0 which was below market expectations of 92.2.

USD/JPY FORECAST FOR THE COMING WEEK

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

USDJPY Weekly Events

USD Existing Home Sales (MoM): market is expecting slight decrease in the results for February, however, we do not expect any surprises on the indicator and no any significant move in currency pair due to results.

USD New Home Sales (MoM) : results for February will be released. Market expectations are on the side of improvement of this indicator from previous -9.2%. As with Existing Home Sales results, we do not expect any significant move in currency pair due to results.

USD Initial Jobless Claims:  we are not expecting any surprises here.

USD Durable Goods Orders: preliminary results for February will be released. Market expects significant decrease in orders, hence, any deviation of actual results from market expectations should make influence on currency pair.

JPY National Consumer Price Index (YoY):  results for February will be released. Considering that this is one of the  very  important indicators for the economy of Japan, any surprises in this index might have modest to significant influence on market move.

 

 

 

 

 

USD/JPY Technical Analysis

After FED`s announcement on halt of interest rate increase, the support levels at 112.3 and 111.56 has been easily breached. The pair found new support grounds at 110.85.

Support level at 110.8 has been also tested two times during February this year.

The reversal from this level revealed new short term resistance at 111.56, which is currently tested by the pair.  Break of this line would suggest next resistance level at 112.33.

On a longer term basis, break from 112.33 would lead to new ground at levels of 113 and  113.8.

Relative Strength Index over 14-day period is currently at levels below 40 implying that market might soon reach oversold side and reverse trend .

USD_JPY_CHART

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

 

USD/JPY MARKET FORECAST

Forecast made by Bank of Scotia as of 2nd March 2016 is quite bullish on currency pair and is as follows:

USDJPY-SCOTIA-BANK-FORECAST

Full report can be found under : Bank of Scotia forecast

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 20th March are following:

USDJPY-TRADE_ECON

Full report can be found at: Trading Economics

I am also bullish on USD/JPY

Last week has been marked by significant market move, weakening US dollar to the five-months low after FOMC meeting . We have also seen new lows of US Dollar against Japanese Yen reaching level of 110.8, finding here new support level. As of the end of last week the currency pair is moving in channel 110.8 – 111.56, finishing the week testing short term resistance level at 111.56. It seems that market currently does not have strength to move outside of this channel. However, Relative Strength Index is  below 40 implying that quite soon market could reach oversold side and reverse trend. I see this as quite possible scenario.   At this point, I believe that first half of the next week will be relatively calm with  continued market  testing both resistance and support levels. However, Thursday and Friday are bringing some fundamentals that could help market break any of those lines. Based on both fundamental and technical analysis I see much likely that short term resistance line would be breached. I stay bullish on the pair.

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