USD/JPY Forecast Sep. 8-12

USD/JPY continues to lose ground as we move away from summer, and closed above the 105 level. It’s a busy week, with 12 events on the schedule. Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.

As expected, the Bank of Japan left its monetary policy unchanged. The yen was unable to fight back against the strength of the US dollar, and even temporarily reached a new multi-year low. The voices of peace in Ukraine weighed on the yen. However, the weak Non-Farm Payrolls took some of the sting out of the greenback.

Updates:

USD/JPY graph with support and resistance lines on it.

Click to enlarge:

1. Current Account: Sunday, 23:50. Current Account measures the difference in value between imported and exported goods and services, and is closely linked to currency demand, as foreigners must purchase yen in order to by domestic goods and services. The indicator slipped to 0.13 trillion yen last month, but still beat the estimate of 0.11 trillion. The surplus is expected to rise to 0.18 trillion in the August release.
2. Final GDP: Sunday, 23:50. GDP is released every quarter, magnifying the impact of each release. The indicator posted an impressive gain of 1.6% in Q2, beating the estimate of 1.4%. The markets are bracing for a decline of 1.8% in Q3. Japan hasn’t seen a decline in GDP since 2012, so a weak reading could hurt the struggling yen.
3. Economy Watchers Sentiment: Monday, 5:00. This indicator is used to measure consumer spending. The indicator rose to 5.13 points last month, ahead of the estimate of 48.7. This marked the first time that the indicator was above the 50-point line since March.  A reading above 50 indicates expansion. The markets are expecting the upward trend to continue, with an estimate of 52.4 for the upcoming release.
4. BOJ Monetary Policy Meeting Minutes: Monday, 23:50. The minutes provide the details of last week’s policy meeting. With the BOJ stating that it was continuing its current monetary policy, the minutes are unlikely to provide any unexpected news which would shake up the markets.
5. Tertiary Industry Activity: Monday, 23:50. This indicator looks at the change in spending by businesses. The indicator posted a decline of -0.1% last month, short of the estimate of 0.2%. The markets are expecting better news in the upcoming release, with the estimate standing at 0.3%.
6. 30-year Bond Auction: Tuesday, 3:45. 30-year bond yields have been steady, with the past yield coming in at 1.68%. No major change is expected in the August auction.
7. Consumer Confidence: Tuesday, 5:00. Consumer Confidence has been moving higher, as the Japanese economy shows improvement. The indicator hit 41.5 points last month, shy of the estimate of 42.3. The estimate for the upcoming release remains unchanged.
8. Preliminary Machine Tool Orders: Tuesday, 6:00. This indicator has been rising in recent readings, coming in at 37.7% last month. As a minor release, it is unlikely to have much effect on the movement of USD/JPY.
9. Core Machinery Orders: Tuesday, 23:50. Core Machinery Orders is an important manufacturing indicator. It tends to show strong fluctuations, resulting in readings that are often well off the estimates. In July, the indicator posted a gain of 8.8%, compared to an estimate of 15.5%. The forecast for the upcoming release stands at 4.1%.
10. BSI Manufacturing Index: Wednesday, 23:50. The index slipped badly in July, posting a decline of 13.9 points, well off the estimate of a gain of 14.1 points. A reading below zero points to pessimism among the large manufacturers. The markets are expecting another weak reading, with an estimate of -10.3 points.
11. Revised Industrial Production: Friday, 4:30. The indicator has struggled and posted a decline of 3.4% in July. This was well shy of the estimate of 0.5%. The markets are expecting  better news from the August release, with an estimate of 0.2%.
12. BOJ Governor Haruhiko Kuroda Speaks: Friday, 6:05. Kuroda will speak at event in Tokyo. A speech which is more hawkish than expected is bullish for the Japanese yen.

* All times are GMT

USD/JPY Technical Analysis

Dollar/yen started the week at 104.17 and dipped to a low of 104.10. The pair then climbed to a high of 105.71, breaking above resistance at 105.44 (discussed last week), but was unable to sustain these gains and closed the week at 105.08.

Live chart of USD/JPY:

Technical lines from top to bottom:

With the dollar posting strong gains against the yen, we are encountering resistance levels which have not been tested in over six years.

There is resistance at 110.68. This line represented a high point of a strong dollar rally in August 2008, which started around the key 100 level.

108.58 was last tested in June 2008.

107.68 was a key resistance line back in May 2005 and again in July 2008.

105.44 had held firm since December but was briefly breached this week is under pressure as the pair trades above the 105 line. Will the pair break through this barrier this week?

104.92 is an immediate support line, which capped the pair around the turn of the year.

104.25 was an important resistance line in August, but has reverted to a support role as the yen continues to lose ground.

It is followed by 1.0350, which was the bottom of the range after the big leap.

The round number of 103 has shown its strength in late July 2013.

In the narrower range, 102.30 is weak resistance.

102.00 is a round number that supported the pair several times and remains and important line that the pair seemed to like very much – the “magnet”.

101.60 is the final support line for now. It is a weak support in the narrower range.

I am bullish on USD/JPY

Japanese numbers remain weak while US conditions are improving, with a growing yield gap. The pair’s momentum is upward and we could see the yen continue to lose ground.