BankForecast.com USD/JPY forecast 18-22 April 2016.

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Talks regarding further FED rate increase are still major focus of market. As April FOMC meeting is approaching we can see that FEDs officials are much more on the side of cautions approach and rate increase during June as per FEDs Kaplan, Lockhart and FED Chair Yellen. Unexpected negative results posted during last week on industrial production, followed with weakened consumer confidence and inflation are supporting FEDs view of postponed rate hikes. University of Michigan preliminary results for April posted unexpected decline to 89,7 below market expectations of 92. On the other side, although Consumer Price Index reached 0,9% on a yearly basis, index fell during February for 0,2%. During previous week FEDs Beige Book was published noting that economic growth is seen as “modest to moderate”, while rising Dollar had its negative influence on manufacturing industry. There has been also noted pressures of declining oil prices on energy and mining sectors. Fundamentals are currently not allowing clear view on US economy recovery phase, and in this sense rate hikes are much more likely to be seen during second half of the year.

After strong shift of JPY to the levels of 108 against US Dollar, currency modestly weakened during last week trading around 109. Strong Yen is currently not welcomed by BOJ considering that it will not contribute to recovery of Japan economy and might further jeopardize measures imposed by BOJ aimed to cope with economic slowdown. Although current Yen level will not influence BOJs direct market intervention, its further strengthening might influence one. Finance Minister Aso confirmed last week his concerns regarding Yen value, not excluding to take any measures if necessary. Fundamentals posted during last week are still not showing signs of recovery, due market is waiting new reaction from BOJ. During April 27-28 policy meeting BOJ will announce its forecast for inflation and growth. Expectations are on the side that during this meeting new stimulus will be imposed (Bloomberg). Speaking about effects of imposed quantitative easing by BOJ during last week, Governor Kuroda noted that measures are outputting “intended effects” as well as his confidence that targeted 2% inflation will be reached.

The currency pair USD/JPY finished week at level 108.63.

 

FUNDAMENTALS WEEKLY UPDATE :

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

Monday, April 11, 2016 :

  1. Japan Machine Orders (YoY): results for February show decrease in machine orders of -0.7% on a yearly basis compared to previous month`s +8.4% y/y. Posted results are better than market expectation of -2.4%.

Tuesday, April 12, 2016 :

  1. Japan Bank Lending including Trusts (YoY): results for March show increase in bank lending including trusts of 2% compared to same period last year. Figure is slightly lower compared to previous month`s 2.2%.
  2. Japan Bank Lending Banks excluding Trusts (YoY) : results for March show increase of 2.0% compared to previous year. Posted results for February were 2.2%.
  3. Japan Machine Tool Orders (YoY): preliminary results for March show decrease of -21.2% in machine orders compared to same period last year, and slightly better from previous month`s -22.5%.
  4. US Monthly Budget Statement: results for March show significant increase in monthly budget deficit of $-108b, from previously posted $-52.9b. Figure is also above market consensus of $-104.0b.

Wednesday, April 13, 2016 :

  1. US Advance Retail Sales : results for March show decrease in retail sales of -0.3% compared to 0.00% previously reported. Market expectations were at 0.1% .
  2. US Retail Sales Less Autos: results for March show very modest increase in sales excluding autos of 0.2%, slightly below market expectation of 0.4%. Previously posted results were at 0.00%.
  3. US Business Inventories: results for February show modest decrease in unsold inventories by manufacturers of -0.1% which is fully in line with market expectations. Result for previous month was at 0.1%.
  4. US Federal Reserve Releases Beige Book revealed some current weakness of US economy. The growth has been seen as “moderate to modest”. There is also negative effect of raising USD to manufacturing industry.

Thursday, April 14, 2016 :

  1. Japan Buying Foreign Bonds (April 08th): data show modest decrease in capital inflow of JPY 1175.3b, compared to JPY 1555.5b for previous week.
  2. Japan Buying Foreign Stocks ( April 08th ) : data show strong increase in capital inflow of JPY 206,0b compared to JPY 47.8b for previous week.
  3. US Initial Jobless Claims : modest decrease in initial jobless claims to 253K from 267K posted during previous week. Figure is well below market expectations of 270K.
  4. US Consumer Price Index (YoY) : results for March show modest decrease in US CPI figure on a yearly basis of 0,9%, compared to 1.0% posted for February. CPI is also below market consensus of 1.1%.
  5. US Consumer Price Index excluding Food and Energy (YoY) : results for March show very modest decrease in core CPI figure to 2.2% compared to 2.3% for February. Market expectation was at 2.3%.

Friday, April 15, 2016 :

  1. Japan Industrial Production (YoY) : forecast for February of -1.2% on a yearly basis is slightly better from figure posted for previous month of -1.5%, however, it still shows negative trend in IP, which is generally not good for Japan economy.
  2. US Industrial Production: results for March show no change to previous month -0.6%. However, figure is below market consensus of -0.2%.
  3. University of Michigan Confidence: preliminary results for April show unexpected decrease of consumer confidence to 89.7. Market consensus has been at 92, while 91 is previously posted.

 

FORECAST FOR THE COMING WEEK

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

Fundamentals 18 - 22 April

US Housing Starts : results for March will be released on a monthly basis. Previously, this indicator was standing at 5,2%.

Japan Merchandise Trade Balance Total: results for March will be posted. Considering that Japan economy is export oriented, it will provide insights on the current trend of Japan exports. Previously posted result was Yen242,8b.

US House Price Index: results for February will be posted on a monthly basis. Last month we have seen modest increase in housing prices of 0,5%.

Japan Nikkei PMI Mfg: preliminary results for April will be posted. Previously posted 49,1.

Japan Tertiary Industry Index: results for February will be released on a monthly basis showing changes in Japan services output. January results showed increased of 1,5% compared to previous month.

 

USD/JPY Technical Analysis

After testing short term resistance level at 107,6, currency pair revert to the up side testing short term support at 109, finishing week at 108,6.

Break of 109 resistance would lead to long term resistance level at 110.8.

Break of 110,8 would leave path for testing 111.56 and 112,33 levels.

Break from support at 107.6 would lead to long term support level at 105.7. This level had also been tested during October 2014.

Relative Strength Index over 14-day period is at levels of 34 showing no clear indication.

USDJPY chart 18-22 April

 

 

 

 

 

 

 

 

 

 

 

 

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

USD/JPY MARKET 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

During last week we have seen some not so expected results on US economy which are sending not so clear signal whether US economy is on a growth path or not. Although employment figures previously posted are showing significant improvement, other aspects of US economy are still showing some deficiencies. From the beginning of the year we have seen increase in CPI, however, during February index fell for 0,2% compared to previous month. FEDs Beige Book also revealed sentiment of modest to moderate economic growth, with raising Dollar hurting manufacturing industry. On the other side, Governor Kuroda is quite confident that imposed QE measures are outputting intended results. One of BOJ targets is CPI of 2% till the end of this year, while for the first two months CPI was standing at modest 0,3%.

After testing short term resistance level at 107,6, currency pair revert to the up side testing short term support at 109, finishing week at 108,6. Break of 109 resistance would lead to long term resistance level at 110.8. Relative Strength Index standing around 34, show no indication of possible trend change.

Considering that end of April is bringing both BOJ and FOMC meetings, I am expecting next week to be relatively calm with currency pair testing again both levels of 107,6 and 109. However, on a long run I am still bullish on USD/JPY.

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