USD/JPY Forecast Oct. 14-17

The Japanese yen lost ground last week, as USD/JPY jumped about 130 points. The pair closed the week at 98.57. This week’s schedule is very light, with just two releases. Here is an outlook on the major market-movers and an updated technical analysis for USD/JPY.
US consumer sentiment and unemployment claims were weak, but the yen couldn’t take advantage. The shutdown in the US continues, but the dollar was unaffected as the markets seem to be patiently waiting for the politicians in Washington to get their act together.
USD/JPY daily chart with support and resistance lines on it. Click to enlarge: 

1. Revised Industrial Production: Tuesday, 4:30. This manufacturing indicator bounced back from a sharp decline in August, posting a solid gain of 3.4% in September. This beat the estimate of 3.4%. It was the best reading from the indicator since January 2012. The markets will be looking for another strong reading this week.
2. BOJ Governor Haruhiko Kuroda: Friday, 6:35. Kuroda will be speaking at an event in Tokyo. Analysts will be listening closely for any hints as to the BOJ”s future monetary policy, and a speech which is hawkish is bullish for the yen.

* All times are GMT
USD/JPY Technical Analysis

USD/JPY started the week at 97.28. The pair dropped to a low of 96.56, breaking through support at 96.59 (discussed last week). USD/JPY then reversed direction, climbing all the way to 98.60. USD/JPY closed the week at 98.57.

Live chart of USD/JPY:

Technical lines from top to bottom

We begin with resistance at the round number of 104. This was a key line back 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 not been tested since that time.
101.44 was the post-crisis high seen in April 2009, and has not been tested since mid-July. 100.85 saw activity in July as the dollar showed strength.
The significant 100 line saw some activity in September and continues to provide resistance.
98.90 held firm for a second straight week as the pair gained ground. It starts off the new weak as weak resistance and looks to be tested if the dollar continues to gain ground.
97.80 is providing USD/JPY with support. The line was breached by the pair early in the week but remains intact.
96.59 continues to provide support. It has some breathing room as the pair trades at higher levels.
Next is the round number of 95, a psychologically significant line. This line has held firm since mid-June.
93.79 marked the low point of a rally by USD/JPY which started in mid-June and saw the pair climb to the mid-101 range in July.
The final support level for now is 92.88, which last saw activity in April.
I am neutral on USD/JPY
The dollar had a good week, despite the political crisis in Washington. However, we could see some strong volatility in the currency markets this week as the debt ceiling will be reached on Oct. 17 if there is no agreement on Capitol Hill. With no major releases until late in the week, the markets will be focused on the shutdown and debt ceiling.

Read More

GBP/USD Outlook Oct. 14-18

The pound’s slide continues, as GBP/USD lost about one cent this week. The pair closed at 1.5946, marking the first week the pair has closed below 1.60 since early September. This week’s key events are CPI, Claimant Count Change and Retail Sales. Here is an outlook of the events and an updated technical analysis for GBP/USD.
The pound took a mid-week hit, following a poor Manufacturing Production release. As well, the trade deficit was well above the estimate. The US posted a weak consumer confidence release on Friday, but the pound was unable to take advantage.
GBP/USD graph with support and resistance lines on it. Click to enlarge: 

1. CPI: Tuesday, 8:30. CPI is one of the most important economic indicators and this release can have a major impact on the movement of GBP/USD. CPI has been fairly steady in recent readings, with the previous release of 2.7 matching the forecast. A similar reading is expected in the September release, with an estimate of 2.6%.
2. PPI Input: Tuesday, 8:30. Producer Price Input is a key release which measures inflation in the manufacturing sector. Unlike CPI, this inflation indicator tends to show some volatility. The estimate for the upcoming release stands at -0.1%.
3. RPI: Tuesday, 8:30. Retail Price Index is similar to CPI, but includes housing costs, which are excluded from CPI. The market has been posting gains slightly above 3% in recent releases and this trend is expected to continue for the September release, with an estimate of 3.2%.
4. Claimant Count Change: Wednesday, 8:30. This critical indicator has been improving recently and the August release posted a sharp drop of -32.6 thousand, easily beating the estimate of -21.2 thousand. Another strong drop is anticipated in September, with a forecast of -24.3 thousand. Will the indicator again beat the estimate? The Unemployment Rate is expected to remain at 7.7%.
5. Average Earnings Index: Wednesday, 8:30. Average Earnings looks at the change in price that government and businesses are paying fro labor. The indicator dropped to 1.1% last month, and a similar reading is expected in the upcoming release, with an estimate of 1.0%.
6. Retail Sales: Thursday, 8:30. Retail Sales is considered the most important consumer spending indicators, and should be treated as a market mover. The indicator disappointed in August, declining by 0.9%. The markets are expecting a turnaround in September, with the estimate standing at 0.5%.

Live chart of GBP/USD:  


GBP/USD Technical Analysis

GBP/USD opened the week at 1.6040. The pair reached a high of 1.6120, but then crashed below the 1.60 line and dropped all the way to 1.5914. The pair closed at 1.5946, as support at 1.5936 (discussed last week) held firm.

Technical lines from top to bottom:

With the pound continuing to slide, we start from lower ground:
There is resistance at 1.6475, which has held firm since August 2011. Next is 1.6343. This line was last breached when the pound dropped sharply in August 2011.
We next encounter resistance at 1.6247. This was a key resistance line in October and November 2012.
1.6125 held firm as the pair pushed higher early in the week. It has some breathing room as the pair has dropped below the 1.60 level.
1.60, a key psychological barrier, started the week in a resistance role but has reverted to support. It is a weak line and could be tested early in the week.
1.5936 is the next support level. It held firm this week but has weakened with the pair continuing to lose ground.
1.5832 continues to provide the pair with strong support. 1.5752 was breached in mid-September by the surging pound but has provided strong support since then.
1.5648 was an important resistance line since June, but has been providing support role since early September.
1.5550 continues to provide GBP/USD with strong support. This line last saw action in mid-June.
The final support line for now is 1.5457. It as held firm since late August.
I am neutral on GBP/USD.
The pound enjoyed an excellent rally in September, but October has been a different story, as the currency has lost ground for the second straight week. It could be a bumpy ride for the pair this week, with the shutdown and debt ceiling weighing on the US dollar. However, if Congress manages to reach an agreement, the dollar could gain ground.

Read More