USD/JPY Forecast March 24-28

The Japanese yen was sensitive to geo-political wobbles once again but eventually lost ground to the mighty greenback Fresh inflation numbers are the highlights of the week. Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.

The fears that the Crimea referendum would spur out of control supported the Japanese yen, and USD/JPY fell to low support. But then, the FOMC decision for a third taper and especially Yellen’s comment about raising the rates sent the pair much higher. The pair is back to a higher, well defined trading range.

Updates:

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

1. CSPI: Tuesday, 23:50. The corporate services price index is another measure of inflation, the BOJ’s primary target. After a slightly disappointing rise of 0.8% in January, a rise of over 1% is expected for February.
2. Inflation numbers: Thursday, 23:30. Japan releases a big batch of inflation figures. The Tokyo core consumer price index is the most important number, as it is a fresh number for the month of March. Japanese inflation is advancing and reached 0.9% in February. Another tick up to 1% is expected. The National Core CPI is also moving higher and already reached 1.3% in January. A similar number is likely in February. Non-core numbers are also published, but they are overshadowed by the core ones.
3. Household Spending: Thursday, 23:30. More spending means a stronger economy and stronger price pressure. Spending by consumers rose at an annual level of 1.1% in January, above expectations. A somewhat slower y/y increase is expected for February.
4. Unemployment Rate: Thursday, 23:30. Japan enjoys a very low unemployment rate of only 3.7%. While this is not a target of the central bank, the figure is useful for observing the overall health of the economy. No change is expected.
5. Retail Sales: Thursday, 23:50. An increase of 4.4% was recorded between January 2013 and January 2014. This exceeded expectations and was probably a front running of the sales tax hike due in April. For February, another strong y/y growth rate is expected. The plunge is expected once the tax arrives.

* All times are GMT.

USD/JPY Technical Analysis

Dollar/yen started the week by trading under the 102 line (mentioned last week) and it fell to support at 101.20. From there the pair shot back up, settling above the round 102 and challenging 102.74.

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.

101.20 provided strong support for the pair during March 2014 and is the low line of support. 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 from neutral to bullish on USD/JPY

Even if following Fed speeches might try to water down Yellen’s “6 months remark”, the genie is out of the bottle and the Fed tightening is not that far in the distance. A rise in US yields could certainly support the pair. In Japan, the sales tax hike is getting closer and the BOJ is ready to double down on its action. Even if the BOJ eventually refrains from big moves, the mere threat of action weighs on the yen.