USD/JPY Outlook August 5-9

USD/JPY gained about 100 points last week, as the dollar tested the 100 level. The pair closed the week just shy of the 0.99 line, at 0.9890. This week’s market-movers include Current Account and the BOJ Monetary Policy Statement and Press Conference. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.

Japanese releases were not impressive, as Household Spending and Industrial Production were weak. US employment numbers were mixed, but strong GDP and manufacturing data helped boost the dollar.

USD/JPY daily chart with support and resistance lines on it. Click to enlarge: 

1. Leading Indicators: Tuesday, 5:00. This index is based on 11 leading indicators, but tends to have a minor impact since most of the indicators were released previously. The index has been steadily rising and posted a reading of 110.5% in July. This easily beat the estimate of 96.3%. The markets are expecting a slightly lower reading in the August release, with an estimate of 108.0%.
2. Current Account: Wednesday, 23:50. This is the first key event of the week.  Japan continues to post monthly surpluses. In July, the surplus dropped from 0.85 trillion yen to 0.62 trillion, but this did match the estimate. The markets are  expecting a higher figure this time around, with an estimate of 0.73 trillion yen.
3. Economy Watchers Sentiment: Thursday, 5:00. This index measures consumer spending, which is a critical component for economic growth. The indicator has been above the 50 level since February, indicating optimism about consumer spending. At the same time, the past three releases have fallen short of the estimates. The markets are not anticipating much change in the upcoming release, with an estimate of 53.5 points.
4. BOJ Monetary Policy Statement: Thursday, Tentative. Analysts will be carefully combing through the BOJ’s policy statement, which provides details about the most recent interest rate decision and the factors behind the decision. Any clues as to future monetary policy could  affect the direction of USD/JPY. A press conference will follow the policy statement.
5. Tertiary Industry Activity: Thursday, 23:50. This indicator measures the change in the total services purchased by businesses. In July, the indicator rose from 0.0% to 1.2%, surpassing the estimate of 0.9%. The markets are expecting a downturn in the upcoming release, with an estimate of -0.2%. Will the indicator surprise the markets and remain in positive territory?
6. 30-year Bond Auction: Friday, 3:45. 10-year bonds posted an average yield of 1.89%, last month, almost unchanged from the June release. The markets are not expecting any major changes in the upcoming auction.
7. BOJ Monthly Report: Friday, 5:00 This release contains detailed statistical data related to the previous interest rate decision and also looks at current and future economic conditions. It is usually of minor significance, and rarely has a strong impact on USD/JPY.
8. Consumer Confidence: Friday, 5:00. Consumer confidence has been struggling, although there are signs that the Japanese economy is improving. In July, the indicator dropped form 45.7 to 44.3 points and was well short of the estimate of 47.2 points. The markets are expecting a better reading this time around, with an estimate of 45.3 points.

*All times are GMT.

USD/JPY Technical Analysis

USD/JPY started the week at 97.96. The pair touched a low of 97.58 but the dollar then posted strong gains, testing the 100 level as the pair climbed to a high of 99.94. USD/JPY closed the week at 98.90 (discussed last week), which started out as a support line at the beginning of last week.

Live chart of USD/JPY:

Technical lines from top to bottom

We start with resistance at 104.22. This line has not been tested since October 2008. At that time, the yen took a sharp tumble that saw it fall as low as the 87 level in December 2008.

103.50 provided support for the pair in July and September 2008 before reverting to a resistance line in October 2008. The line had been quiet since then but was briefly breached in mid-May. Next, 102.50 was a key resistance line in late May but has been quiet since that time.

101.44 was the post-crisis high seen in April 2009, and has not been tested since mid-July. 100.85 was busy in July as the dollar pushed above the 100 level.

The significant 100 level has seen a lot of activity recently. It was tested at the end of the week, and could see more activity if the US dollar pushes higher.

98.90 started off the week as a weak support line, and the pair parked itself right on this line at the end of the week.  97.80 was quite busy in June, and was breached last week, but held as the pair bounced back. It has strengthened as the pair trades at higher levels.

The March 2013 peak of 96.71 is providing support. This is followed by the round number of 95, which was last tested in mid-June.

93.79 marked the low point of a rally by the dollar which started in mid-June and saw the pair climb to the mid-101 range earlier this month.

The final support level for now is 92.86. This line saw action in early March and again in early April. The latter date marked the low point of a yen rally which saw USD/JPY climb very close to the 100 level.

I am neutral on USD/JPY

The pair can’t seem to make up its mind as to which direction to take. The Japanese economy has showed signs of improvement, and some solid numbers this week could boost the yen. US releases were a mix last week, but market sentiment is strong with regard to the US economy, and strong numbers could revive talk of QE tapering, which is dollar-positive.