Weekly Recap and Outlook for USDJPY- 6/7/2010
USDJPY got off to a weak start last week as Monday's Japanese economic releases showed Japanese Average Cash Earnings rose by 1.5% year on year, which was better than the 0.9% rise expected.
Japanese Preliminary Industrial Production was up only 1.3%, considerably worse than the consensus of a 2.6% increase. Nevertheless, the previous number was upwardly revised to 1.2% from 0.3%.
The rate made its weekly low of 91.51 on Tuesday but then began rallying after the Japanese Prime Minister Yukio Hatoyama tendered his resignation after being in office for only eight months which put considerable pressure on the Yen.
The resignation was due to an unfulfilled election promise concerning the relocation of a U.S. Army base on the island of Okinawa. Hatoyama will be succeeded by Deputy Prime Minister and Finance Minister Naoto Kan, who has been a strong supporter of a weaker Yen.
On Wednesday, the rate continued rallying as Japanese Capital Spending showed a decrease of -11.5% for the quarter versus the -9.5% expected.
USDJPY continued higher, making its weekly high of 92.86 on Friday as Naoto Kan was confirmed as the new Japanese Prime Minister.
The rate then retreated on profit taking, closing the week at 91.82, up 1%.
Fundamental Outlook for USDJPY
The primary market-moving economic data releases and policymaker speeches scheduled for this coming week in Japan and the United States are as follows:
Economic releases this upcoming week in Japan include some important data, featuring the Japanese Final GDP figure on Thursday.
Monday has no releases, but Tuesday will have the Japanese Current Account (1.42T), Bank Lending (last -1.8% Y/Y), the Economy Watchers' Sentiment index (50.8), M2 Money Stock (2.8% Y/Y) and Leading Indicators (102.8%).
On Wednesday, Preliminary Machine Tool Orders (last 220.9% Y/Y) and Core Machinery Orders (1.2% M/M) will be released.
Thursday features the Final Japanese GDP number (1.1% Q/Q), the Final GDP Price Index (-3.0% Y/Y), plus the CGPI (0.3% Y/Y) and Household Confidence (42.3).
This closes out the week because Friday has no releases scheduled.
This week's economic release calendar for the United States offers some important data, featuring the Trade Balance report due out on Thursday and a number of important policymaker speeches.
Monday begins the week with the release of Consumer Credit (1.1B M/M).
Tuesday has the IBD/TIPP Economic Optimism index (49.3) due out, in addition to a speech scheduled to be given in Washington D.C. by Fed Chairman Bernanke and a speech in Hollywood by FOMC Member Duke.
Wednesday offers Wholesale Inventories (0.6% M/M) and the Fed's Beige Book. In addition, Wednesday has a speech scheduled in Kansas City by FOMC Member Hoenig, plus some important testimony in front of the House Budget Committee in Washington D.C. by Federal Reserve Chairman Ben Bernanke. Bernanke is also scheduled to speak later in the day in Richmond.
Thursday is the week's highlight, featuring the major Trade Balance data (-40.8B), in addition to Initial Jobless Claims (447K), plus the Federal Budget Balance (-138.6B).
Friday closes the week with the release of Retail Sales (0.1% Core and 0.2% M/M) and Business Inventories (0.6% M/M), in addition to the Preliminary University of Michigan Inflation Expectations (last 3.2%) and Consumer Sentiment index (74.7).
The Technical Picture for USDJPY
On the technical front, USDJPY continued to trade within its broad 87.95-94.97 consolidation band last week, only trading as far down as 90.53 before rallying up to 92.87.
Also, USDJPY again managed to close the week back above its 200-day Moving Average that has now virtually flattened out and comes in at the 90.95 level. In addition, the rate's 14-day RSI also shows a neutral reading of 49, offering little in terms of directional bias. Overall, this has neutralized the outlook for USDJPY in the medium term for the time being.
Also, with a possible triangle pattern now forming on the daily charts, the coming week may see an even tighter range as the rate consolidates within converging trend lines before the pattern's breakout occurs that should yield a considerable move.
Furthermore, since the upside seems more likely to prevail over the coming week, buying on dips near the 91.00 level just above the 200-day Moving Average at 90.95 may work out well, although profits usually need to be taken quickly in such ranging markets.
Resistance for USDJPY shows up at 92.87, 93.63 and 94.97. Support is indicated at the 90.97, 88.95/25 and 87.95 levels.
Figure 1: Daily candlestick chart of USDJPY showing its 200-day MA in red, Bollinger Bands in green and the 14-day RSI in the indicator box in blue.
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