BankForecast.com USD/JPY Weekly Forecast May 16-20 2016

Home / USD JPY / BankForecast.com USD/JPY Weekly Forecast May 16-20 2016 FORECAST
In USD JPY

Number of FOMC voting members supporting rate hike during June meeting is increasing. After previous weeks statements from Atlanta Chief Lockhart and San Francisco Chief Williams, during last week Boston FED Chief Rosengren and Kansas City Fed George expressed their view in support of further rate increase. Certainly actual employment and inflation figures will be in focus of FED officials prior to actual decision. Current developments on wages, inflation and employment are moving in positive direction implying that there is some potential for June rate increase. In addition, data released during last week show significant shift in retail sales to 1.3% in April, compared to -0.4% previously posted. Next week is bringing both US April CPI figures on Tuesday and Minutes of the April FOMC meeting on Wednesday which would be closely monitored by market.  Currently, fundamentals are moving in favor of rate increase, however, whether this is also going to be FEDs decision during June meeting is about to be seen.

BOJ Governor Kuroda held speech in Tokyo last week, but without any change in rhetoric. He noted that BOJ still have policy options to achieve inflation target of 2%, and that central bank will react in a “forward-looking manner”. In addition, he noted that currency volatility and “overseas economic development” represent risk for achievement of BOJs economic targets. During last week Yen dropped against US dollar and other peer-currencies, after Professor Ito, former BOJ and MoF official, expressed his view on potential further monetary easing of BOJ during June meeting. Results posted during last week show continuing trend in Japan trade balance surplus, as in March it was standing at Yen 927.2b, significantly increased from Yen425.2b previously posted. Figures are continuing to support Yen as save-heaven currency, viewed by market.

The currency pair USD/JPY finished week at level 108.64.

 

FUNDAMENTALS WEEKLY UPDATE :  

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

Monday , May 09, 2016 :

  1. Japan Labor Cash Earnings: results for March are showing better than expected increase in cash earnings of 1.4% compared to same period last year. Result posted for February was 0.7%, while market consensus was at 0.6%.
  2. Japan Consumer Confidence Index: results for April show quite modest drop to 40.8 from 41.7 previously posted. Result is slightly better than market expectation at 40.7.

Tuesday, May 10, 2016 :

  1. US Wholesale Inventories: results for March show modest increase in inventories to 0.1% which is fully in line with market expectations. Previously posted figure was -0.5%.

Wednesday, May 11, 2016 :

  1. Japan Leading Index: preliminary results for March show significant increase in index to 98.4 from 96.8 previously posted and 96.4 expected by markets.
  2. Japan Coincident Index: preliminary results for March show modest increase in index to 111.2 from 110.7 posted previously and 111.2 expected by market.
  3. US DOE Crude Oil Inventories: results for previous week show significant decrease in oil inventories for -3410K. Market consensus was at 750K.
  4. US Monthly Budget Statement: results for April show modest decrease in budget to $106.5b from $156.7b previously posted. Figure is also below market consensus of $110.0b.

Thursday, May 12, 2016 :

  1. Japan Trade Balance – BOP basis: results for March show significant increase in balance surplus to Yen 927.2b from Yen425.2b previously posted. Result is also significantly above market expectation at Yen906.0b.
  2. Japan Buying Foreign Bonds (May 7th ): results for previous week are showing significant drop in capital inflow to Yen270.3b compared to Yen984.7b previously posted.
  3. Japan Buying Foreign Stocks (May 7th ): results for previous week are showing significant drop in capital inflow to Yen270.3b compared to Yen984.7b previously posted.
  4. Japan Bank Lending including Trusts: results for April show modest increase in lending to 2.2% on a yearly basis from 2.0% previously posted.
  5. Japan Bank Lending Banks excluding Trusts: results for April show increase in lending activity between banks to 2.2% from 2.0% previously posted and above market consensus of 1.9%.
  6. Japan Bankruptcies: results for April show significant decrease of companies bankruptcies filing to -7.8% on a yearly basis, compared to -13.15% previously posted.
  7. Japan Eco Watchers Survey – Current : results for April show modest decrease in index to 43.5 from 45.4 previously posted and below market consensus at 44.0.
  8. Japan Eco Watchers Survey – Outlook : results for April show modest decrease to 45.5 from 46.7 previously posted and 46.2 expected by market.
  9. US Initial Jobless Claims: results for previous week show modest increase in jobless claims to 294K from 274K previously posted. Figure is also above market expectation at 270K.

Friday, May 13, 2016 :

  1. Japan Tertiary Industry Index: results for March show further decrease of index of -0.7% in relation to -0.1% posted for February.
  2. US Advance Retail Sales: results for April show significant increase in retail sales to 1.3% from -0.4% previously released, and above market consensus at 0.8%.
  3. University of Michigan Confidence: preliminary results for May show modest increase in confidence to 95.8 from 89.0 previously posted and above market expectation at 89.5.

 

FORECAST FOR THE COMING WEEK

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

Fundamentals 16-20 May

Wednesday brings US FED release minutes from latest FOMC meeting held on April 26-27th. Extremely important event to watch. Minutes will reveal more insights on FOMC members view on current economic developments and potential next FEDs move.

Japan Machine Tool Orders: preliminary results for April will be posted on a yearly basis. Previously, this indicator was standing at -21.2%.

US Consumer Price Index: results for April will be posted both on monthly and yearly basis. Extremely important indicator to watch now, considering its implications on further tightening of US monetary policy. CPI results posted for March were 0.1% m/m and 0.9%y/y, while core inflation was standing at 1.1% on a yearly basis.

US Industrial Production: results for April will be posted. Previously released result was -0.6%, while market is expecting to see some improvement in IP, reaching 0.3%.

Japan Gross Domestic Product: preliminary annualized results will be posted for first quarter of this year. GDP previously posted was standing at -1.1%, while market is expecting some positive developments and increase to 0.4%.

Japan Machine Orders: results for March will be both on monthly and yearly basis. Previously, indicator was standing at -0.7% y/y.

 

 

 

 

 

 

USD/JPY Technical Analysis

After testing short term resistance at 107.1 currency pair reverted trend finishing week at level of 108.6.

Break from 108.9 resistance would lead to testing next short term resistance levels at 109.9 and long term resistance at 110.8.

On the other side, break from 108.1 support level would lead to testing short term support at 107.1 and 106.5 down to 105.5, tested ruing October 2014 and December 2013.

Relative Strength Index over 14-day period is at levels above 40 still not clearly indicating trend reversal.

Graph 16-20 May

 

 

 

 

 

 

 

 

 

 

 

 

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

USD/JPY MARKET FORECAST

  • Morgan Stanley expects further Yen strengthening in the near term. Bank Forecast.
  • Scotia Bank keeps bullish view on currency pair forecasting level of 118 as of the year end and 112 for end of second quarter Scotia Bank.
  • 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.
  • Deutsche bank said it is much more likely for USD/JPY to fall below 110 in the next several months : Bank Forecast.

 

For next week I am neutral on USD/JPY

Markets are continuing to price news articles rather than actual fundamentals. Such behavior might not been seen as strange in this moment, considering level of uncertainty that central bankers are brining into market. On the other side, many monetary easing measures imposed by central banks of world strongest economies influenced to some extent markets to neglect actual fundamentals in expectation of imposed measures outcome. Dovish talk of FEDs officials during previous period of time is now changed to more voices supporting rate increase during June meeting. Certainly, recently posted fundamentals on employment, wages, inflation and most lately, retail sales, are supporting such decision. Next week April CPI will be posted and Minutes of the April FOMC meeting, bringing some more insight on FOMC members view on current economic developments and potential next rate move. BOJ central monetary target is to bring inflation to 2% and, as per Governor Kuroda, BOJ still have measures at disposal to achieve it and will react in forward-looking manner. Does this imply on June monetary easing – nobody can be sure at this moment.

After testing short term resistance at 107.1 currency pair reverted trend finishing week at level of 108.6. Break from 108.9 resistance would lead to testing next short term resistance levels at 109.9 and long term resistance at 110.8. I strongly believe that next week we might see currency pair moving in a range 108 – 110. However, important results are going to be released during next week, so I will stay on neutral side.

 

Recent Posts