USD/JPY Outlook September 2-6

USD/JPY dropped sharply early in the week, but recovered most of these losses. The pair closed just above the 98 line, at 98.12. This week is fairly quiet, highlighted by the BOJ Monetary Policy Statement. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.

The yen got a boost as Japanese inflation numbers met expectations. In the US, manufacturing and housing numbers were weak, but GDP and employment numbers were solid.

Updates:

• Syria is off the agenda for now, but for how long?: Idea of the Day Now August is out of the way investors will reflect on a month that disappointed in...
• USDJPY Targets Further Upside: USDJPY: Having maintained its upside offensive, USDSJPY looks to extend that strength in the days ahead. However, it will have...
• ISM Manufacturing PMI exceeds expectations – dollar extends gains: The ISM Manufacturing PMI for August edged up to 55.7 points. It was expected to slide to 54.2 points in...
• USD/JPY: Trading the ISM Non-Manufacturing PMI: ISM Non-Manufacturing PMI (Purchasing Managers’ Index), is based on a survey of purchasing managers in the services sector. Respondents are surveyed for...
• USD/JPY Looks Bearish as US Economy grows by at a rate of 2.5%, Japan discusses a sales tax hike next week: The US will not go to war with Syria unless its allies are with them. However, the UK and France...
• ISM Non-Manufacturing PMI Jumps to 58.6 – Dollar Follows: The ISM Non-Manufacturing PMI for August leaped to a score of 58.6 points, indicating strong growth in America’s biggest sector....
• Non-Farm Payrolls only 169K – dollar lower – taper train probably on track: US Non-Farm Payrolls disappointed with only 169K. They were expected rise by around 180K in August 2013 and expectations could...

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

1. Capital Spending: Sunday, 23:50. This indicator measures the value of new capital spending by businesses, and its release every quarter magnifies its impact. The indicator has posted declines over the past two quarters and the downward trend is expected to continue, with an estimate of a -2% decline for Q2.
2. Monetary Base: Monday, 23:50. Monetary Base continues to rise, although the past two releases have fallen short of their estimates. The markets are expecting another rise in the indicator, with the estimate standing at 41.3%.
3. Average Cash Earnings: Tuesday, 1:30. Average Cash Earnings is an important gauge of consumer spending, which is a critical component of economic growth. The indicator rose just 0.1% in the previous release, but the markets are expecting a sharp gain of 0.8% in the August release.
4. 10-year Bond Auction: Tuesday, 3:45. Yields on 10-year bonds have not shown much movement in recent releases, with the average yield for the previous release coming in at 0.80%. No substantial change is expected in the yield of the upcoming auction.
5. BOJ Monetary Policy Statement: Thursday, Tentative. This is the key event of the week. The monetary policy statement contains the outcome of the BOJ’s decision on interest rates and may offer clues as to future monetary policy. A press conference will follow.
6. BOJ Monthly Report: Friday, 5:00. The monthly report contains an analysis of current and future economic conditions, but is a minor release and is unlikely to have a strong impact on USD/JPY.

USD/JPY Technical Analysis

USD/JPY started the week at 98.72. The pair touched a high of 98.84, but then dropped sharply to 96.82. The pair then recovered, closing the week at 98.12 as support at 97.80 (discussed last week) remains intact.

Live chart of USD/JPY:

Technical lines from top to bottom

We start with resistance at the round number of 104. This line was a key line in May 2008. At that time, USD/JPY was in the midst of a rally which saw the pair climb as high as 110.

102.50 was an important 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 saw a lot of activity in July. With the pair losing some ground, this line has some breathing room.

98.90 was breached last week but remained intact at week’s end as a resistance line. It could be tested by the pair early in the week.

97.80 is providing support to USD/JPY. This line was quite busy in June and in late July and held firm this week as the pair dropped sharply.

96.71 is the next support line. This is followed by the round number of 95, a psychologically significant line. It continues to provide support and 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 in July.

92.86 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 bullish on USD/JPY

The markets continue to speculate that the Federal Reserve could pull the trigger on QE tapering as early as September, and such talk is bullish for the dollar. Japanese inflation indicators were solid last week, indicating that the Japanese economy is responding to Abenomics. Analysts will be paying close attention as the BOJ releases a policy statement late in the week, and this event could be the market-mover of the week.

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EUR/USD Forecast September 9-13

EUR/USD dropped for a second week in a row, due to the ECB’s cautious stance, among other things. Did the pair bottom out, or is there potential for more falls? Industrial and inflation data. Here is an outlook on the market-movers ahead and an updated technical analysis for EUR/USD.

ECB president Mario Draghi was “not enthusiastic” about the return to growth, remaining cautious about recovery and keeping monetary policy unchanged. Underlying price pressures in the Eurozone are expected to remain subdued over the medium term. However Draghi also noted the positive trend of GDP growth in the second quarter supporting a gradual recovery in the euro-area. In the US, the weak Non-Farm Payrolls cast a shadow over the chances of QE tapering in September. Let’s start,

Updates:

EUR/USD daily graph with support and resistance lines on it. Click to enlarge:

1. Sentix Investor Confidence: Monday, 8:30. Euro zone sentiment improved in August amid stronger data indicating to an economic recovery in Euro states suffering from recession. Sentiment edged up to -4.9 from -12.6 in July, but lower than the -2.0 forecasted. Investors become more confident amidst the economic recovery in France as well as some southern European countries. The index on Germany the Eurozone’s locomotive, soared to 20.3 in August from 18.4 the previous month. A further improvement to -4.0 is anticipated.
2. French Industrial Production: Tuesday, 6:45. French industrial output contracted unexpectedly by 1.4% in June, following a 0.3% drop in May, missing predictions for a 0.3% rise and contrasting some positive indicators released a few days earlier. Despite the positive direction the French economy took. Domestic demand is still muted. Output was weaker in the production of food and agricultural goods as well as in energy and mining. A gain of 0.7% is forecasted.
3. German Final CPI: Wednesday, 6:00.  Germany’s monthly inflation rose by 0.5% in June, the same as in the previous month and in line with consensus forecast. Meanwhile, Germany’s annual inflation soared 1.9% in July, its highest level since December 2012 due to rising food prices. The ECB wishes to keep the euro zone’s annual inflation rate at below 2% over the medium term. Monthly inflation is expected to remain unchanged.
4. German WPI: Thursday. Germany’s wholesale price index declined unexpectedly by 0.3% in July, following a 0.4% fall in the previous month. Analysts expected prices to rise 0.2%. A rise of 0.2% is projected this time.
5. French CPI: Thursday, 6:45. French consumer prices declined 0.3% in July from June amid low prices in the summer sales season as well as a seasonal fall in food prices. This reading was preceded by a 0.2% gain in June. Economists expected a smaller decline of 0.1% in July. An increase of 0.5% is forecasted.
6. ECB Monthly Bulletin: Thursday, 8:00. The European Central Bank’s monthly Bulletin, released in August revealed the ECB sees a gradual recovery in the Eurozone for the rest of this year and continuing into 2014. It expects inflation to remain below the 2% target for the medium term, allowing the central bank to continue the easing measures in the current times to enable gradual growth.
7. Industrial Production: Thursday 9:00. Manufacturing output among euro zone factories, increased by 0.7% in June, broadly in line with expectations, driven by a boost in durable goods production, providing further proof the Eurozone has exited recession. Analysts expected a bigger climb of 1.1%, however, compared with the same period last year, industrial production advanced by 0.3% in June after a 1.3% decline in May. Recovery, however, remains fragile since the jobless rate remains at record highs, despite a modest drop in June. A drop of 0.1% is expected now.
8. Employment Change: Friday, 9:00. Despite modest improvements in the Eurozone economic indicators, the Euro-area employment situation is far from good. The Eurozone labor market contracted 0.5% in the first quarter, bringing levels to their lowest in seven years. A record 19.4 million people was registered in April, when unemployment reached its pick, according to Eurostat data. The worst situation is in Italy, Greece, Cyprus, and Portugal all drastically increased their jobless numbers. Another drop of 0.2% is expected now.
9. Eurogroup Meetings: Friday. Eurogroup meetings attended by the Eurogroup President, Finance Ministers from euro area member states, the Commissioner for economic and monetary affairs, and the President of the European Central Bank will be held in Vilnius. The Eurogroup President welcomed the real progress made by the Greek authorities to meet the ECB requirements and the structural reforms implemented to increase competitiveness. He also stated additional support will be needed beyond the program.

*All times are GMT

EUR/USD Technical Analysis

Euro/dollar started the week below the broken trendline (mentioned last week). It then continued lower, bouncing off the 1.31 level, before closing at 1.31.

Technical lines from top to bottom:

1.37 was the 2013 peak, and is still far. 1.3590 capped EUR/USD back in February and is minor resistance.

1.3520 was a swing high in February, before the pair tumbled down. 1.3450 is the new peak of August 2013 and serves as the next resistance line.

1.3415 was the peak back in June and serves as a strong line of resistance, also after the break. 1.3350 provided support when the pair traded higher in February and weakens now.

1.33 worked as support during late August 2013 and remains relevant. It is followed by 1.3240, which capped the pair in April and also had a role in August. 1.3175 capped the pair during July 2013 The pair closed very close to this line, and it will be pivotal.

1.3100 is worked as temporary resistance in December 2012 and is becoming more important once again, after capping a recovery attempt in June and then in July and providing support in September.

It is followed by 1.3050, which proved be strong support in May 2013, defending the round number in more than one occasion, but it is less significant now.

The very round 1.30 line was a tough line of resistance. In addition to being a round number, it also served as strong support and recently worked as a pivot line.

Uptrend support broken

Since mid July the pair trading along an uptrend support line, which it touched three times but it now moved away from this line.The dipped below this line and remains below it. The breakdown served as a bearish sign.

I remain bearish on EUR/USD

The euro is getting no love from the ECB: with a more cautious tone and talk of a rate cut, the central bank is weighing on the pair. In addition, a third bailout for Greece seems inevitable and also Germany isn’t so strong, as industrial output showed.

Despite the big disappointment in the NFP (especially in the participation rate), hints from the Fed points to tapering. It might not be in a big scale, but also $15 billion is a significant change of course. Tapering is not fully priced in yet. In order to hold back on tapering, perhaps only a big escalation is Syria is needed.

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GBP/USD Outlook September 9-13

GBP/USD gained about one cent on the week, as the pair closed above the 1.56 line. This week’s major events include Claimant Count Change and the Inflation Report Hearings. Here is an outlook of the events and an updated technical analysis for GBP/USD.

British PMIs from the services, manufacturing and construction sectors all looked sharp this week. As well, NIESR GDP posted a strong gain, as the British economy continues to show signs of improvement. In the US, PMIs looked solid, but the critical Non-Farm Payrolls disappointed.

GBP/USD graph with support and resistance lines on it. Click to enlarge: 

1. RICS House Price Balance: Monday, 23:01. This indicator looks at the price increases reported by surveyors and is an important measure of inflation in the housing sector. The indicator has been showing sharp increases – from 1% in April to 36% in July. The estimate for August stands at 36%.
2. BOE Credit Conditions Survey: Tuesday, 8:30. This important report is released each quarter, magnifying its impact. It includes data on lending to consumers and businesses. An increase in lending is a sign that lenders are comfortable issuing loans and that consumers and businesses are more confident about spending.
3. Claimant Count Change: Wednesday, 8:30. This key release measures the numbers of unemployment claims each month. The indicator continues to post declines, and last month’s release came in at -29.2 thousand, well below the estimate of -14.3 thousand. Another strong reading is expected in the upcoming release, with an estimate of -21.2 thousand. The Unemployment Rate is expected to remain at a level of 7.8%.
4. Average Earnings Index: Wednesday, 8:30. Average Earnings measures the change in price that businesses and the government are paying for labor. The index jumped to 2.1% in July, the highest reading in over two years. The estimate for August stands at 1.3%.
5. CB Leading Index: Wednesday, 9:00. This index is based on 7 economic indicators, but is a minor release since most of the indicators have already been released. In July, the index posted its first decline of 2013, with a reading of -0.2%. The markets are hoping to see a gain for August.
6. External BOE MPC Member David Miles Speaks: Wednesday, 15:30. Miles will speak at a finance conference in London. MPC members vote on where to set the BOE’s key interest rate, and analysts will be looking for clues about future monetary policy.
7. Inflation Report Hearings: Thursday, 9:00. BOE Governor Mark Carney and MPC members will testify about inflation and economic conditions before Parliament’s Treasury Committee. This is a key event, and we could see market volatility during the hearings, especially if there are comments about the currency markets.

Live chart of GBP/USD: 

GBP/USD Technical Analysis

GBP/USD opened the week at 1.5517. The pair dropped to a low of 1.5606 but then rebounded sharply, climbing to a high of 1.5681, and breaking past resistance at 1.5648 (discussed last week). GBP/USD closed the week at 1.5623.

Technical lines from top to bottom:

We start with resistance at 1.6125. This line has held firm since January, when the pound went on a sharp skid that saw it drop below the 1.50 level.

1.60, a key psychological barrier, is the next line of resistance. This line was last tested in mid-January, when the pound went on a sharp slide that saw it fall below the 1.49 line.

1.5944 saw a lot of activity in November 2012 and this past January.

1.5832 was busy in late January and has remained in place as a resistance line since February. 1.5752 was last breached in June, marking the peak of a rally by the pound which started in May.

1.5648 saw a lot of activity in June and continues to provide resistance. For the second straight week, the line was breached as GBP/USD moved higher, but remained intact at the end of the week.

1.5550 is providing GBP/USD with support. This line saw action in mid-June, as GBP/USD pushed past this line and climbed as high as the mid-1.5750 range.

1.5484 has strengthened in support as the pair trades at higher levels. It was quite busy in August.

1.5350 saw some action in the first week in August, when the pound started a rally that saw it climb above the 1.57 line.

1.5258 is the next line of support. 1.5196 saw action in mid-July and again in the first week of August.

1.5110 was busy in July but has had a quiet August as the pair continues to trade at higher levels.

1.5000 is the final support level for now. It is a critical support line, and has remained in place since early July.

I am neutral on GBP/USD.

The pound has a strong week, buoyed by strong PMI releases. The UK economy is picking up steam, which is good news for the pound. Over in the US, the Federal Reserve hasn’t given many clues as to when it might begin QE tapering, but speculation is increasing that the Fed could take action later in September. A well, market sentiment remains positive about the US economy.

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