BankForecast.com USD/JPY Weekly Forecast March 28 – April 1 2016

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USD/JPY forecast 28. March – 1. April 2016.

The  week started with modest US Dollar recovery after reaching lowest levels for the last five months during previous week. The recovery was  supported by comments from several FED members indicating potential rate hike in the near future, a move expected by market for a longer period of time. As CNBC reported, Philadelphia Fed President Patrick Harker mentioned early April as period for the rate hike if US economy remain on track of improvement. Released US annualized GDP for fourth quarter exposed better than expected result of 1.4%, showing improvement in US growth rate for last year and beating market expectations of 1%. At the same time, we have seen drop in US durable goods orders  for February by 2.8% in relation to previous month. Such decrease is now becoming a continuous trend, lasting over previous four months, reflecting general slowdown of the economy. The reason for drop could be found both in global weak demand and currently uncertain “policy landscape” (Bloomberg).

New Bank of Japan board member, Makoto Sakurai, will step on his duty during April. As previous adviser to PM Abe, he is expected to further support Kuroda`s current policy course (Bloomberg).  At the same time PM Abe commented that Japan`s policy is not aimed to weaken Yen, but that weakening of the Yen is consequence of BOJ`s measures (Reuters). Inflation rate published for Japan on Friday shows modest increase in February CPI to 0.3% y/y and compared to 0.00% for previous month. Increase is mostly driven by rise in food prices, however it is still questionable whether policy measures imposed by Governor Kuroda will manage to drive inflation to targeted 2.0% until the end of this year.

The currency pair USD/JPY finished week at level  113.075.

 

FUNDAMENTALS WEEKLY UPDATE :  

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

Monday, March 21, 2016 :

  1. US Existing Home Sales (MoM) : results for February show modest decrease in US home sales to -7.1% in relation to previous month +0.4%.

Tuesday, March 22, 2016 :

  1. Nikkei Japan PMI Mfg : preliminary results for March show modest slowdown to 49.1 from 50.1 for previous month.
  2. Japan All Industry Activity Index (MoM) : results for January increased to 2.0% versus previous    -0.9%.
  3. US House Price Index (MoM): results for January show modest increase in US house prices to 0.5% from 0.4% previously.
  4. Markit US Manufacturing PMI: preliminary results for March of 51.4 show almost no change from previous months 51.3.

Wednesday, March23, 2016 :

  1. US New Home Sales (MoM): results for February show modest increase in US new home sales of 2% in relation to previous month of -7.0%. However, figure is still bellow market expectation of 3.2%.

Thursday, March24, 2016 :

  1. US Initial Jobless Claims : during second week of March US initial jobless claims has been increased by 6K, to the level of 265K, and below market expectation of 269K.
  2. US Durable Goods Orders: preliminary results for February show decrease in US durable goods orders of -2.8% in relation to previous month 4.2%. The figure is slightly better than market expectations of -3.0%.

Friday, March25, 2016 :

  1. Japan National Consumer Price Index (YoY): results for February show modest increase in Japan CPI to 0.3% compared to 0.00% for previous month. Other released results are showing CPI of 0.0% excluding fresh food, and core CPI of 0.8% (excluding food and energy prices).
  2. US Gross Domestic Product: results for fourth quarter of 1.4% are above market expectations of 1%, implying improvement of US economic output as of the end of last year.

 

FORECAST FOR THE COMING WEEK

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

Fundamentals

US Advance Goods Trade Balance: results for February will be released. Previous results showed modest negative trend in trade balance, as for January deficit stands at -$62.228 billion, compared to    $-61.5b as of December.

US Personal Income and Personal Spending:  results for February will be released. Previous results are showing modest increase of 0.5% of US households pre-tax earnings. In line with jobless data, there should not be any surprises on data release.

US Personal Consumption Expenditure Core : results for February will be released on a year on year basis. Previous result is showing modest increase of 1.7%, which is positive for US economy considering that consumers are spending more on goods and services. Important indicator to watch not only in relation to future growth of US economy, but also as an indication of future inflation.

Japan Household Spending: results for February will be released on a year on year basis. Previous results show modest slowdown in Japan households spending of -3.1%, certainly not positive for growth of Japan economy.

Japan Retail Trade: results for February will be released on a year on year basis. Previously we have seen slowdown of -0.1% in consumer confidence, not quite positive trend for Japanese economy.

US Consumer Confidence: results for March will be released. The indicator is providing indication on US consumer sentiment on spending,  providing some insights on possible future course of the economy.

Japan Industrial Production: preliminary results for February will be released on a year on year basis. Previous result showed modest decrease in Japan industrial production of -3.8%.

Japan Tankan Large Manufacturers Index: results for first quarter will be released. Quite important indicator to watch considering importance of large manufacturers for Japan economy.  Previously, index was on level of 12.

 

USD/JPY Technical Analysis

After reaching support levels at 110.8 during previous week, the pair reversed trend, currently testing short term resistance level at 113. During whole previous week up trend was evident.

Since February this year currency pair is moving in channel  with support level at 110.8 and resistance at 114. USD/JPY  finished week at level of 113 testing short term resistance. Break of this level 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.

Relative Strength Index over 14-day period is currently at levels around 50 implying that current trend is still not over.

Graph

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 Bank of Scotia 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 25th March are following:

Trading economics forecast

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.

 

I am still bullish on USD/JPY

During week there had been some voicing from FED Governors on support of the near-future rate hike. However, final decision will depend on the current state of US economy, and in this sense, there is a possibility that April will not be a month for  market long-awaited rate increase. On the other side, Japanese economy is still on the course of slowdown with BOJ`s current policy measures still without significant results. As per PM Abe, BOJ will not conduct measures directly targeted to weaken currency, but however, there is a possibility that policy measures aimed to support growth will weaken Yen.

Technical’s are showing reversed trend from the week start. After reaching resistance level at 110.8, currency pair reversed trend and finished week testing short-term resistance at 113. Since February USD/JPY is moving in channel 110.8-114, so the break of 113 would lead to long term resistance of 114. On the other side, short-term trend correction is quite possible during next week, till the support level of 112.

With Relative Strength Index currently at levels around 50 I don’t think that current trend is still over, and I still stay bullish on USD/JPY.

 

 

 

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