USD/JPY Forecast March 10-14

The Japanese yen was significantly sensitive to the events in Ukraine, strengthening at first before weakening afterwards. Eventually we have seen a big upside breakout. Will the pair run to new highs? The rate decision in Japan is the main event in a very busy calendar. Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.

USD/JPY dropped to low ground on the rising tensions in the Ukraine, but didn’t really break out of the triangle. This all changed as the mood improved, especially as US Non-Farm Payrolls beat expectations. The previous range is gone and the pair hit resistance.

Updates:

• Mar 10, 14:17: Traders seek safe haven assets amid Russia-Ukraine tensions: Sturm und drang continues to rule the financial markets this morning, where bourses are reacting badly to signs that Russia is...

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

1. Final GDP: Sunday, 23:50. The initial publication of Q4 GDP disappointed, as the economy grew less than expected on both the monthly and yearly indicators. A confirmation of 0.3% growth is expected now, raising the chances for more monetary stimulus.
2. Current Account: Sunday, 23:50. Japan’s trade balance and the wider current account suffer from the energy imports that have increased following the Fukishima disaster. A fifth consecutive current account deficit is expected for the month of January 2014, after around  the country posted around 200 billion yen deficit in December.
3. Bank Lending: Sunday, 23:50. Bank lending is growing nicely in recent months, with an accelerated pace of 2.3% in the last two months. February will likely see a similar rise.
4. Economy Watchers Sentiment: Monday, 5:00. This survey of 2000 consumers provides a good insight about the economy. It is a PMI-like scale. Since February 2013, it has been positive, with the score rising above 50. After a small disappointment with 54.7 points in January, another small drop can be expected now.
5. Machine Tool Orders: Monday, 6:00. This indicator at the industrial level has show a strong year over gain in January: 39.6%. Another strong yearly rise is likely to be reported by JMTBA.
6. M2 Money Stock: Monday, 23:50. The growth of money in circulation is watched by the Bank of Japan as a signal of expansion and also for inflation. After a better expected growth rate of 4.4% in February, an even stronger rise is expected now.
7. Rate decision: Tuesday. The Bank of Japan already took some small steps in the direction of loosening monetary policy in its previous meeting. No action is likely in this meeting, but Kuroda and his colleagues might use the opportunity to hint about bigger moves in April, when the sales tax is hiked. The BOJ could counter the fiscal squeeze by ramping up the volume of QE.
8. BSI Manufacturing Index: Tuesday, 23:50. This official Business Survey Index surprisingly dropped to 9.7 points back in Q4 2013, causing worries after big quarterly rises. For Q1, another drop is likely due to the sales tax rise.
9. Tertiary Industry Activity: Tuesday, 23:50. While the indicator refers to the month of January, it still has a lot of impact as it is quite wide. METI reported a bigger than expected fall of 0.4% in December, and could now show a rise. Note that there are usually significant revisions to the data published here.
10. BOJ Monthly Report: Wednesday, 5:00. Just one day after the rate decision, we get to see what the members saw when making their decision. The report contains forward looking forecasts and could consist of hints towards the April BOJ meeting, thus making it important.
11. Consumer Confidence: Wednesday, 5:00. This measure of consumer confidence has been on the fall in the past two months, ticking to 40.5 points. The ~5,000 households surveyed here are likely to show figure now.
12. Core Machinery Orders: Wednesday, 23:50. The figure relates to machines ordered by factories: an early stage in the manufacturing process. This shows the expectations for the future, and has a significant impact despite the big month over month changes. After a plunge of 15.7% in December, a leap is likely to printed now.
13. Monetary Policy Meeting Minutes: Thursday, 23:50. The meeting minutes from the BOJ do not refer to the latest meeting but actually to a previous one. Nevertheless, hints about future policy could still be relevant.
14. Industrial Production: Friday, 4:30. The initial estimation for industrial production growth for January surprised to the upside with a rise of 4%. This figure is set to be confirmed in the revised industrial output release.

* All times are GMT.

USD/JPY Technical Analysis

Dollar/yen started the week gaping lower on a Sunday, but it eventually settled above the 101.35 level (mentioned last week) and then continued back to the previous range. It then surged higher and fell short of the 103.77 line by just 2 pips.

Technical lines from top to bottom

The top line is the peak seen in the turn of the year: 105.44. This was challenged several times. Below, 104.80 capped the pair during January.

Below, 103.77 provided support for the pair in January and served as a clear separator of ranges. 102.74 was a stubborn peak during February and is the top line of the current trading range.

102 is a round number that provided support to the pair in late January and is now a pivotal line in the range.

101.35 replaces the previous peak of 101.44 after working as support in February. 100.75 was a cushion for the pair during several days earlier in the year and is the last defense before the very round number.

100 is the ultimate support line and the last line for now.

I turn bullish on USD/JPY

With an ease of tensions related to the Ukraine crisis, the safe haven yen demand could peter out. In addition, the solid US data, as well as the growing chances of BOJ action all point to a lower yen and another bullish run of USD/JPY.