USDJPY gained overall last week in the absence of any major economic releases from Japan, with the exception of the BOJ's Monetary Policy Meeting Minutes from its June 14-15th meeting that were released on Tuesday. USDJPY began the week by trading lower initially before then reversing and rallying. The pair made its weekly high of 87.56 on Tuesday despite weaker U.S. housing numbers, and ahead of the BOJ minutes release.

Tuesday saw the release of the BOJ's Monetary Policy Meeting Minutes which indicated the central bank's intention to leave rates unchanged at 0.1%. In addition, when referring to the condition of the Japanese economy, the central bank had this to say:

"Japan's economy shows further signs of a moderate recovery, induced by improvement in overseas economic conditions. Exports and production have been increasing mainly against a backdrop of high growth in emerging economies. In these circumstances, business fixed investment is showing signs of picking up."  

The U.S Dollar then suffered from general weakness after comments made in congressional testimony on Wednesday by Fed Chairman Ben Bernanke indicated that he believes the U.S. economic picture is "unusually uncertain".

USDJPY then made its weekly low of 86.33 on Thursday after the Japanese All Industries Activity increased by 0.2% month on month, versus an expected decline of 0.4%. The pair then rallied on Friday as U.S. Existing Home Sales and HPI showed better than expected results. USDJPY went on to close the week at 87.35, up 0.8%.

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:

Japan:

Considerably more economic data releases are due out in Japan this coming week compared to last week. They feature the Japanese CPI inflation data and Employment Report that are both due out on Friday.

Monday starts the week out with the release of the Japanese Trade Balance (0.54T), while Tuesday offers just the Corporate Services Price Index or CSPI (-0.9% y/y).

Wednesday has nothing notable due out in Japan, while Thursday has the important Japanese Retail Sales data (3.3% y/y).

Friday is especially busy in Japan, offering Manufacturing PMI (last 53.9), Household Spending (-0.7% y/y), Tokyo Core CPI (-1.2% y/y), National Core CPI (-1.0% y/y), the Japanese Unemployment Rate (5.2%), Preliminary Industrial Production (0.2% m/m) and Housing Starts (1.7% y/y). This closes the week.

United States:

The upcoming week of economic data releases out in the United States is moderately active like the previous week, and offers some interesting data for forex traders on the U.S. economy. The U.S. economic calendar features Friday's key Advance GDP data.

The week commences on Monday with just New Home Sales (317K) due out. That is followed on Tuesday with the S&P/CS Composite-20 HPI (3.8% y/y), as well as the important CB Consumer Confidence index (51.5) and the Richmond Manufacturing Index (20).

Wednesday offers Core Durable Goods Orders (0.6% m/m), plus Durable Goods Orders (0.9% m/m) and the closely watched Fed Beige Book.

Thursday only has Initial Jobless Claims (456K) out in terms of notable releases, and Friday closes the week with plenty of action.

Releases on Friday include the highlighted Advance GDP number (2.5% q/q), plus the related Advance GDP Price Index (1.1% q/q) and the Employment Cost Index (0.5% q/q). Also out on Friday are the Chicago PMI (56.1), the Revised University of Michigan Consumer Sentiment survey (67.5) and University of Michigan Inflation Expectations (last 2.9%).

The Technical Picture for USDJPY

On the technical front, USDJPY failed to make a new low last week beyond the 86.25 level seen the previous week. The rate only traded as far down as 86.33 before bouncing correctively higher to close at 87.35, up 0.8% on the week overall. USDJPY now seems to be forming a near term trading range consolidation pattern capped by 87.56 and with a base at 86.25. This range pattern is also showing signs of a gradual contraction as time progresses.

Although the rate traded as high as 87.56 last week, it generally kept below its key 61.8% retracement level of the move from the 84.80 Nov 27th low up to the 94.97 May 5th high at 88.68. If the rate continues to sustain losses below this key level it would suggest that another downside objective for the rate would be at the 100% retracement level at 84.80 which could offer significant support if the 86.25 level gives way.

Furthermore, the recent breakout of a presumed triangle pattern continues to provide an as yet unmet measured move objective of 83.81 that should be seen on the break of good support seen at 84.80. Also, a convincing break there could well send the rate lower, with 79.75 being the next major support level seen on the charts for USDJPY.

The rate also continues to trade well below its 200-day Moving Average that has now started to slope gradually downwards again after having pretty much flattened out. This key indicator now comes in at the 90.65 level and provides a neutral to bearish medium term outlook for the rate.

Nevertheless, while USDJPY may still have some way to fall, the rate's most recent corrective upward move has sent its 14-day RSI toward resistance on the overall declining wedge seen on that indicator's graph for the 14-day RSI at the 39 level, so the next move may well be to the downside early in the coming week. Also, while the most recent 86.25 low penetrated into oversold territory on this RSI, it did so to a lesser degree than the previous lows, thereby demonstrating divergence in extreme territory that can often portend a market reversal.

After closing at 87.35 on Friday, resistance for USDJPY shows in the 86.96/87.35 and 89.09/14 regions and at 90.18, just above the psychological 90.00 level. Support is indicated at 86.73, in the 86.25/33 region and at 84.80.

Overall, this technical scenario argues for a short period of range trading in USDJPY between 86.25 and 87.56. Medium term traders holding shorts could now start looking to cover at attractive levels ahead of good support at 84.80, especially if the lower part of the aforementioned trading range breaks.

Note: Past performance is not indicative of future results.

Figure 1: Daily candlestick chart of USDJPY showing its 200-day MA in red, Bollinger Bands in green, Fibonacci Retracement levels in royal blue, Trend Lines in purple and the 14-day RSI in the indicator box in pale blue.