BankForecast.com USD/JPY Weekly Forecast May 02-06 2016

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Unprecedented measures taken by BOJ few months ago will still stay in force, without adding any additional stimulus for now, as per BOJs decision during its April meeting. Such course of action has been greatest surprise for many analysts, considering previous statements from Governor Kuroda and some other BOJ officials, heating market expectations on possible further BOJ move. As a result, Yen gained more than 2% in value against US Dollar, while stock index Topix fell for 3.2%. As per Governor Kuroda briefing, imposed monetary policy measures need time to reflect in real economy, due he is expecting to see its effects during this period. He again noted that measures can be expanded with no limit, and that strong yen could make its impact on corporate sentiment. Based on his statement, some economists are now seeing possibility of next BOJ move to occur during July meeting. Economic data released on Thursday revealed severe drop in Japan Consumer Price Index, during March, to -0.1% on a yearly basis. Although originally, BOJ targeted CPI for the year end at 2%, forecast has been revised during BOJ meeting, and this level of inflation is expected to be seen during Y2017. Core inflation is also slightly down to 0.7% from 0.8% during February. However, at this moment there are some improvements in preliminary results for Industrial production reaching 3.6% compared to previous month, bringing IP to total 0.1% on a yearly basis during March. However, whether this can be seen as reverted trend in long term slowdown of IP, is just too early to be concluded.

FED was reluctant again to increase rates at its latest FOMC meeting held during last week, which was fully in line with market expectations. Instead of rates, this time markets were set to hear more from FED officials on their view on current state of US economy that would imply potential future actions. However, FEDs rhetoric was quite modest, mentioning again things that are well known to market. FED is targeting full employment and is satisfy with developments on labor market while keeping an eye on household spending considering its potential impact on raising prices. Developments on the world scene will still be monitored by FED and its potential spillover effect on US economy. Taking into account FEDs aloofness and latest fundamental data, it still cannot be said with full certainty whether US economy is on a clear growth path, which would require FED to further tighten its monetary policy. Results posted during last week on personal consumption of US citizens are showing modest increase of 1.9%, better then market expectation of 1.7%, indicating potential modest impact on CPI. However, posted GDP for first quarter of 0.5% is the most slowest growth rate for the last two years, and is certainly less than 0.7% where market was expecting to see US economic output.

The currency pair USD/JPY finished week at level 106.35.

 

FUNDAMENTALS WEEKLY UPDATE :  

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

Monday , April 25, 2016 :

  1. US New Home Sales (MoM): result for March shows modest decrease in new home sales by -1.5% compared to previous month. Market expectation was at 1.6%, while figure posted for previous month was at 2.0%.

Tuesday, April 26, 2016 :

  1. US Durable Goods Orders: preliminary results for March show modest increase in orders of 0.8%, still below market expectation of 1.9%. Result for previous month was -3.0%.
  2. US Durables excluding Transportation: preliminary results for March show modest improvement in results to -0.2% compared to -1.3% previously posted, but still below market consensus of 0.5%.
  3. Markit US Services PMI: preliminary results for April show one point change in sentiment to 52.1 from 51.3 previously posted. Market expectations were at 52.0.
  4. Markit US Composite PMI: preliminary results for April show almost no change in sentiment to 51.7 from 51.3 previously posted.

Wednesday, April 27, 2016 :

  1. Japan All Industry Activity Index: released data for February show decrease to -1.2% compared to previous month 1.2%. Figure is slightly better than market consensus at -1.4%
  2. Japan Small Business Confidence: results for April show modest decrease to 47.8 from 48.8 previously posted.
  3. US Advance Goods Trade Balance: results for March show significant drop in goods trade deficit to -$56.900b, compared to -$62.864b previously posted. Figure is also much better from market consensus at -$62.800b.
  4. US FOMC Rate Decision: rate is unchanged from level of 0.5%.
  5. US FOMC Rate Decision (Lower Bound): rate is unchanged from level of 0.25%.

Thursday, April 28, 2016 :

  1. Japan Jobless Rate: results for March show modest decrease in jobless rate to 3.2% from previous 3.3% where market expectations had been.
  2. Japan Household Spending: figure show contraction in spending to -5.3% on a yearly basis. Previously posted result was 1.2%, while market expectation was standing at -4.1%.
  3. Japan National Consumer Price Index: results for March show significant drop in CPI to -0.1% on a yearly basis. Previously , indicator was standing at 0.3%, while market consensus was at 0.0%.
  4. Japan National Consumer Price Index excluding Fresh Food: results for March show significant drop in indicator to -0.3% on a yearly basis. Previously, indicator was standing at 0.0%, while market consensus was at -0.2%.
  5. Japan National Consumer Price Index excluding Food and energy: results for March show drop in core inflation to -0.7% on a yearly basis, from previously posted 0.8%. Market consensus was at -0.8%.
  6. Japan Retail Trade: posted figure for March show decrease in retail trade to -1.1% y/y, from previous 0.0%. Although negative, figure is still below market expectation of -1.4%.
  7. Japan Large Retailers Sales: result for March show decrease in retailers sales to -1.2% from previously posted 2.2% and above market expectation of -0.9%.
  8. Japan Buying Foreign Bonds (April 22nd ) data show modest increase in capital inflow of JPY984.7b, compared to JPY 843.0b for previous week.
  9. Japan Buying Foreign Stocks (April 22nd) data show significant decrease in capital inflow of JPY20.9b compared to JPY504.3b during previous week.
  10. Japan Industrial Production: preliminary results for March show significant increase in IP on a monthly basis of 3.6%, from previously posted -5.2% and above market expectation of 2.8%.
  11. Japan Industrial Production: preliminary results for March show modest increase in IP on a yearly basis of 0.1%, from previously posted -1.2% and above market expectation of -1.6%.
  12. BOJ Basic Balance Rate: no change from previous 0.10%
  13. BOJ Macro Add-On Balance Rate: no change from previous 0.00%
  14. BOJ Policy Rate: no change from previous -0.10%.
  15. US Gross Domestic Product: as per posted results, annualized US GDP for first quarter is 0.5%, less than market expectations of 0.7%. As of the last quarter of last year, GDP was standing at 1.4%.
  16. US Personal Consumption: annualized data for first quarter of 1.9% are better than expected of 1.7%. As of the end of last year personal consumption was at 2.4%.
  17. US Gross Domestic Product Price Index : annualized data for first quarter of 0.7% are better than market expectation of 0.5%. Previously posted result was 0.9%.

Friday, April 29, 2016 :

  1. US Personal Income: results for March show modest increase in personal income of 0.4% compared to 0.2% posted previously. Figure is above market consensus of 0.3%.
  2. US Personal Spending: results for March show modest decrease of personal spending to 0.1% compared to 0.2% posted previously, which was also market expectation.
  3. US Real Personal Spending: results from March show modest decrease to 0.0% compared to 0.3% posted previously.
  4. US Personal Consumption Expenditure Core (YoY): very modest decrease in indicator during March to 1.6% from 1.7% posted previously. Outputted results were fully in line with market consensus.
  5. US University of Michigan Confidence: forecasted result for April show modest decrease to 89.0 from 89.7 previously posted. Market expectation was standing at 90.0

 

FORECAST FOR THE COMING WEEK

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

Fundamentals 2-6 May

Week ahead is going to be relatively calm, at least concerning fundamentals. Due to Holiday in Japan, so called Golden Week, Japan market will be closed during next week from May 3-5, hence next results will be posted on Friday.  US FED`s Bullard, Kaplan, Lockhart and Williams will speak at Stanford on Friday, where it could be expected to hear some insights from latest FOMC meeting held last week.

US ISM Manufacturing: results for April will be posted, together with ISM Prices Paid. Previously, ISM Manufacturing indicator was standing at 51.8.

US ADP Employment Change: results for April will be posted. Currently it represents significant indicator considering FED`s target on full employment. Previously posted result was 200K.

US Trade Balance: results for March will be posted. Previously,  trade deficit has been at level of -$47.1b.

US ISM Non-Manufacturing/Services Composite: results for April will be posted. Result during previous month was 54.5.

US Factory Orders: results for March will be posted. Previously posted change was -1.7% indicating slowdown in new US factory orders.

US Durable Goods Orders : April forecast will be posted. Previously actual result was 0.8%.

Japan Monetary Base: level of changes in Japan currency supply will be posted for April on y/y basis. Previously, result was 28.5%.

Japan Nikkei PMI : PMI both for Services and Composite will be posted for April. Previously those two indexes were standing at 50 and 49.9 respectfully.

US Unemployment Rate: results for April will be posted. Very important indicator to watch considering FEDs targeting full employment. Current unemployment rate is  5.0%.

US Change in Non-farm Payrolls: results for April will be posted. Previously, indicator was standing at 215K.

 

USD/JPY Technical Analysis

After testing downside short term resistance level at 111.8, currency pair revert trend after FOMC and BOJ meetings, finishing week at level of 106.36. Both long term support levels at 110.8 and 107.8 has been breached. Level of 106.3 has not been tested previously.

Break of 106.2 short term support level would lead testing level of 105. This level has also been tested during October 2014 and December 2013. Next long term support levels can be found at 103.3 and 100.8.

Break of 106.2 on up side would lead  to testing long term resistance at 107.8 and further to 110.8.

Relative Strength Index over 14-day period is at levels above 30 still not clearly indicating trend reversal.

Graph 2-6 May

 

 

 

 

 

 

 

 

 

 

 

 

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

USD/JPY MARKET FORECAST

  • United Overseas Bank states that break below 109.8 would indicate end of bullish trend. Bank Forecast
  • 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 neutral on USD/JPY

Strong market expectation on BOJ further measures coping with slowdown of Japan economy has not been fulfilled. However, BOJ policy statement provided some valuable insights on potential next moves. We could see that BOJ officials are not putting so much emphasis on inflation, as it has been clearly obvious that 2% target would not be reached by the end of this year, due  forecast has been extended to Y2017. BOJ officials are aware that strong Yen is going to hurt corporate sentiment, but eventual move from BOJ to halt further strengthening could not be expected in this moment, which at some point is leaving open door for further strengthening of Yen. Last week, results posted some positive move in industrial production reaching 0.1% y/y at March, but whether this can be seen as reverted trend in long time slowdown of IP, is just too early to be concluded. On the other side, US economy is showing some improvements in labor market and household spending, however, posted GDP of 0.5%  for first quarter is the most slowest growth rate for the last two years, obviously showing very modest US economic growth.

After testing downside short term resistance level at 111.8, currency pair revert trend, breaking even two long term support levels at 110.8 and 107.8, finishing week at 106.3. Break of 106.2 short term support level would lead testing level of 105, which has also been tested during October 2014 and December 2013. Break of 106.2 on up side would lead  to testing long term resistance at 107.8 and further to 110.8.

During next week Japan market will be closed for a few days due to holiday, and after such strong moves seen during previous week, I am not expecting any new surprises during next week. There is a possibility that markets might test both short term support and resistance levels at 106.2 and 107.8. However, I am neutral on currency pair for next week.

 

 

 

 

 

 

 

 

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