BankForecast.com USD/JPY Weekly Forecast May 9-13 2016

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Surprisingly weak job report data for April posted on Friday are raising a question  among market analysts whether this is first signal of job growth easing in the US? April report shows decrease of 40K of nonfarm payrolls to 160K, significantly lower from 200K where markets were expecting to see the figure. Unemployment rate is still holding at 5%, although market was expecting to see further decrease. Posted employment figures are leading some market participants to further revise their interest rate hike expectations for this year.  However, regardless of latest slow down in job market, which is much more question of how realistic is to create 200K jobs each month rather than conclusion on a trend,  there is possibility that increase in wages, and their impact on inflation, might be enough for FED to continue with its scheduled two rate increases during this year. Indeed, during last week we have seen some comments from FED officials on possible rate move during June meeting, as Atlanta Chief Lockhart called it a “real option”, while San Francisco FED Chief Williams is noting that rate hike will have his voice during June meeting, considering that economy is moving as per FEDs expectations. Such statements are heating market expectations and must be cautiously approached, taking into account evidence that continuously postponed increases during previous FOMC meetings increased nervousness of market participants, resulting in significant weakening of US currency since the beginning of the year.

Strong Yen might be one of the topics during next G7 meeting, as per Minister Abe. Calling for stabilization of currency, he again expressed his readiness to react if currency continues to appreciate further, jeopardizing outcome of monetary stimulus imposed by BOJ to cope with deflation trend and economic slowdown. Latest strengthening of Yen, Deputy Minister Aso called “speculative”, expressing his concerns regarding such market behavior. However, it is still unclear whether this might be sort of reaction to inclusion of Yen to US currencies monitoring lists for potential currency manipulation aimed to gain unfair trade advantages. Governor Kuroda noted again readiness to impose further measures, if necessary, to cope with current economic issues putting stability of prices in focus instead of foreign exchange volatilities. During last meeting, BOJ revised its inflation target of 2% to be reached during Y2017, instead as of end of Y2016, and cut  GDP forecast to 1.2% from 1.5%. Due to Holiday in Japan during last week there has not been many data released, so much more is expected to be seen during next week. As per released results, Japan monetary base has been expanded by 26.8% y/y during April, reaching JPY 386.2t, while Nikkei composite sentiment is modestly down to 48.9 compared to 49.9 posted previously.

The currency pair USD/JPY finished week at level 107.10.

 

FUNDAMENTALS WEEKLY UPDATE :  

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

Monday , May 02, 2016 :

  1. US Markit Manufacturing PMI : forecasted result for April show no change from 50.8 previously posted, which is fully in line with market expectations.
  2. US ISM Manufacturing: result for April show modest decrease in sentiment to 50.8 from previously posted 51.8. Market consensus was at 51.4.
  3. US ISM Prices Paid: result for April show modest increase in prices paid to 59 from 51.5 previously posted. Market expectation were at 52.0.

Wednesday, May 04, 2016 :

  1. US ADP Employment Change: results for April show modest decrease in employment to 156K below market expectation of 195K. Previously posted result was standing at 200K.
  2. US Trade Balance: results for March of -$40,44b exceeded market expectations of -$41.1b. Figure is also significantly better from -$47.1b previously posted.
  3. US ISM Non-Manufacturing/Services Composite: results for April show improvement in sentiment to 55.7 which is better from both market consensus at 54.8 and 54.5 previously posted.
  4. US Factory Orders: results for March show significant improvement in factory orders which has increased for 1.1% compared to previous month when indicator was standing at -1.7%. Figure is also above market consensus at 0.6%.
  5. US Durable Goods Orders: forecast March figure show no change from 0.8% previously posted. Figure is also fully in line with market expectation.
  6. US DOE Crude Oil Inventories: posted figure show significant increase in crude oil inventories to 2784k from 1999k posted for previous week, and significantly higher than market expectation at 750k.

Thursday, May 05, 2016 :

  1. US Initial Jobless Claims: results for previous week show significant increase in jobless claims to 274K from 257K posted previously and 260K expected by market.

Friday, May 06, 2016 :

  1. Japan Monetary Base: during April change in monetary base was 26.8% y/y compared to 28.5% for previous month.
  2. Japan Monetary Base end of period: results for April show modest increase to JPY386.2t, compared to JPY375.7t for previous month.
  3. Japan Nikkei PMI Services: results for April show modest decrease in services sentiment to 49.3 compared to 50.0 posted previously.
  4. Japan Nikkei PMI Composite: results for April show modest decrease in composite sentiment to 48.9 compared to 49.9 posted previously.
  5. US Unemployment rate: results for April show no change in unemployment of 5% . Market consensus has been at 4.9%.
  6. US Change in Non-farm Payrolls: results for April show decrease to 160K from 215K previously posted. Market expectation has been at 200K.
  7. US Change in Private Payrolls: results for April show modest decrease to 171K from 195K previously posted, and below market expectation at 190K.
  8. US Average Hourly Earnings: results for April show modest increase of 2.5% on a yearly basis, compared to 2.3% posted previously. Figure is also above market expectation of 2.4%.
  9. US Consumer Credit: results for March show significant increase of consumer credit to $29.674b, compared to $14.145b posted previously and $16.0b expected by market.

 

FORECAST FOR THE COMING WEEK

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

Fundamentals 9-13 May

Japan Governor Kuroda is giving a speech in Tokyo on Friday, expecting to provide some updates from latest BOJ meeting on outcome of BOJ monetary measures and signals for any further planned moves.

Japan Labor Cash Earnings: results for March will be posted on a yearly basis. Previously, indicator was standing at 1%.

Japan Real Cash Earnings: results for March will be posted on a yearly basis. Previously, indicator was 0%.

Japan Consumer Confidence Index: result for April will be posted. Previously, sentiment was at 41.7.

US Labour Market Conditions Index Change: results for April will be released, showing change in index from -2.1 previously posted. Considering FEDs target of full employment, this indicator should provide some insight in current labor market conditions.

US Wholesale Inventories: results for March will be released showing changes in inventories of wholesalers. Previously, indicator was standing at -0.5%.

Japan Leading Index: preliminary results for March will be posted showing sentiment of Japan economy. Previously, index was standing at 96.8.

Japan Coincident Index: preliminary result for March will be released showing movements in Japan economic activity. Previously, index was at 110.7.

Japan Trade Balance – BOP Basis: results for March will be released showing current changes in Japan trade balance. Important indicator to watch considering Japan orientation toward exports. Previously, positive balance was at JPY425.2b.

Japan Bank Lending including Trusts: results for April will be posted showing changes in lending of Japan banks on a yearly basis. Previously posted change was 2.0%. Further increase might be expected considering implemented negative interest rates by BOJ for banks reserve funds parked with CB.

Japan Bankruptcies: results for April will be posted showing changes in number of companies that filed for bankruptcy. Result for previous month was -13.15%.

US Advance Retail Sales: results for April will be released showing changes in sales to consumers from previous month. Previously, indicator was at -0.3%.

 

USD/JPY Technical Analysis

Considering Holiday in Japan during previous week, markets were relatively calm starting a week at level of 106.14 and finishing testing short term resistance at 107.1.

Break from short term resistance at 107.1 would lead to testing new levels of 107.7 which has been also tested during April this year further to 108.9 and 109.9.

On the other side, break of 106.3 support level would lead to testing short term support at 105.5, tested ruing October 2014 and December 2013, further to 103.3 and 100.8.

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

Graph 9-13 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

Last week has been relatively calm when fundamentals are in question, partly also due to holiday in Japan. Decrease in posted new jobs surprised market analysts making them revisit their expectations regarding US job growth trend and its potential implications on future FED rate hike. I am of opinion that it is just too early to draw conclusions on both topics. FX fluctuations shall be one of the topics for next G7 meeting, with Minister Abe expressing concerns regarding negative impact of strong Yen on Japan economy and imposed BOJ measures. Next week, Governor Kuroda  is giving a speech in Tokyo and I am hoping to hear some updates from latest BOJ meeting on outcome of BOJ monetary measures and signals for any further planned moves.

Markets were relatively calm during previous week, starting a week at level of 106.14 and finishing testing short term resistance at 107.1. Break on the up side would lead to next short term levels at 108.9 and 109.9., while on downside support levels are at 105.5 and 103.3. However, for the next week, taking into account fundamentals, I do not expect any significant fluctuations to occur. Rather, I see currency pair testing again resistance at 108 and support at 106 levels.

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