What USD/JPY is waiting for to decide the near-term direction?

February 6, 2014 in Forex Analysis

USD/JPY- conflicting viewsUSD/JPY’s fall into the psychological support ranges of 100.00 has seen three strong supports so far. The first one was at 100.77, the second at 100.75 and the third at 100.80. Let’s have a look on the fundamentals and the price-action patterns to see what can be expected from the pair.

Fundamentals

Last week’s economic releases clearly favored Japanese yen’s strength. This week has been again going against the U.S. dollar while inclining in favor of the yen.

Economic releases from the U.S.

The Markit manufacturing PMI of U.S. saw a drop in January from the previous 55.0 to 53.7. Same was the case with the ISM (Institute of Supply Management) manufacturing PMI, which was 51.3 in January against the previous month’s 57.0 and the expectations of 56.0.

The  construction spending again presented a bearish view. Month over month change in the construction spending came out to be 0.1% against the previous month’s 0.8% and the consensus of 0.2%.

January data showed that the total vehicle sales in the U.S. dropped to 15.24 million from December’s 15.40 million. This drop was again more than the market expectations and consensus which were indicating that the release would show a rise in the vehicle sales to 15.70 million.

Results for the month over month factory orders came out slightly better than the expected drop but over all they also showed a drop. The data showed -1.5% drop against the previous month’s 1.5% increase. Expectations were for -1.7% drop, however.

ADP employment figures showed that the addition in the employment numbers, in January, was 175 K and was quite less than the previous month’s 227 K. The employment numbers were also less than the expected 180 K.

The only economic releases which showed slightly better results in January were ISM non-manufacturing PMI and MBA mortgage applications. ISM non-manufacturing showed a slight increase to 54.0 from the previous month’s 53.0 and the MBA mortgage applications were up to 0.4% from the previous -0.2%.

Economic releases from Japan

On the other hand the economic releases of this week are keeping with the recent positive trend. The yer=over-year vehicle sales saw a sharp jump of 27.5% in January. Not only the figure itself was impressive enough but it was quite higher than the previous month’s 18.7%.

In January, the year-over-year monetary base i.e. the money put in circulation by the Bank of Japan saw an impressive jump of  51.9%. The change during the previous month was 46.6%. This clearly supports the increasing inflation rate which was released during last week as 1.6%. The data also show that the moves are as per the targets of prime minister Abe’s government and the BoJ i.e. to of achieve 2% inflation rate.

The data of the YoY change in the labor cash earnings followed the suit and a rise in the cash earnings of of 0.8% was seen during January. The previous month has seen an improvement of 0.6% on year over year basis.

The only other economic data expected this week from Japan is the consumer confidence release which is due today and the leading economic index release due tomorrow.

What is keeping USD/JPY from the further fall?

No doubt the pair stays in an overall uptrend which had started from 77.12 during September 2012 and stretched up to 105.44. However, from the fundamental point of view the markets seem to be waiting for the non-farm payroll report from the U.S. which is due tomorrow.  The payroll data of December, which was released on January 10th was disappointing with just 74,000 payroll addition in the nonfarm category. However the expectations are for a major rise in the employment numbers during January 2014. The consensus is to see the nonfarm payrolls of January as 185,000 i.e. more than double the figure of the previous month.

What do the charts say?

Well, not only the charts but one of the major factors which is keeping the fall in check is the psychological support of 100.00 level. However, the charts also seem to be saying something to support the current support levels. Lets have a look on the daily chart.

Expected support levels for USDJPY considering the overall price-action.

Some of the critical resistance levels which were seen in the recent past have been near 100.60, including the major previous resistance at 100.61. These previous resistances are expected to act as support now. The first sign of a break of this support will be with any break below 100.61. The interesting point is that the current 200-day moving average support also adds to this outlook of expected support range.

What is expected?

Tomorrow’s nonfarm release may prove to be very critical for the near-term moves. In case the data comes weaker than the expectations with any good margins then that can push the pair overboard to overcome the psychological support of 100.00. A positive data, however, may act as the driver of a reversal, back to upside, to target 105.00 again.

Let’s also have a look on the weekly chart:

USDJPY support and resistance trend lines.

The pair was contained in a triangular formation for over 5 months before it broke out during November and then continued the upwar jump with a strong momentum. However the support trend line of that formation extends back to the last week of February 2013 i.e. the same was in place for close to 9 months. In case some major setback is witnessed with tomorrow’s economic releases and the prices fail the above mentioned supports the the fall may extend towards 99.80. Considering the overall trend we would expect bottoming near there to bring another recovery.

Do keep and eye on the periodic updates of USD/JPY outlook and forecasts. Do also share your comments and opinions in the comment box below.

1 response to What USD/JPY is waiting for to decide the near-term direction?

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