The yen had a spectacular week, as USD/JPY plunged over 400 points last week. The pair closed at 106.51, its lowest level in five weeks. This week’s highlight is Final GDP. Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.
Japanese consumer indicators were unimpressive, as Retail Sales and Household Spending both posted declines. Over in the US, Non-Farm Payrolls shocked the markets with disastrous gain of only 38K jobs. The US dollar was broadly lower on Friday as a result, and the yen took full advantage, posting sharp gains.
USD/JPY graph with support and resistance lines on it.
Click to enlarge:
- 30-year Bond Auction: Tuesday, 3:45. 30-year yields continue to weaken, although they remain in positive territory. The yield dropped to 0.32% in the May release.
- Leading Indicators: Tuesday, 5:00. This index is based on 11 economic indicators, but has limited impact since most of the data has already been released.The indicator dipped to 98.4% in March, beating expectations. The markets are expecting a stronger release in April, with an estimate of 100.8%
- Current Account: Tuesday, 23:50. Japan’s current account surplus continues to improve. The surplus climbed to JPY 1.89 trillion in March, very close to the estimate. The upward trend is expected to continue, as the estimate stands at JPY 2.04 trillion.
- Final GDP: Tuesday, 23:50. In May, Preliminary GDP expanded 0.4%, beating the estimate of 0.1%. The estimate for Final GDP stands at 0.5%.
- Economy Watchers Sentiment: Wednesday, 5:00. This consumer indicator continues to point below the 50-level, indicative of pessimism. In April, the indicator dipped to 43.5 points, short of expectations. Little change is expected in the May release.
- Core Machinery Orders: Wednesday, 23:50. This manufacturing indicator rebounded in March with a sharp gain of 5.5%. This reading was much stronger than the estimate of -1.9%. The markets are braced for a decline of 3.2% in the April report.
- Preliminary Machine Tool Orders: Thursday, 6:00. The indicator continues to post sharp declines, pointing to weakness in the manufacturing sector. The indicator came in at -26.4% in April.
- PPI: Thursday, 23:50. This index gauges inflation in the manufacturing sector. The indicator continues to post declines, and the April report dropped by 4.2%, weaker than the forecast of -3.7%. The estimate for May stands at -4.2%.
- Tertiary Industry Activity: Friday, 4:30. The indicator has struggled, posting four declines in the past five months. The March report showed a decline of 0.7%, below expectations. The markets are expecting a turnaround of 0.7% in April.
* All times are GMT
USD/JPY Technical Analysis
USD/JPY opened the week at 110.77 and touched a high of 111.45. The pair then reversed directions and dropped to a low of 106.38, as support held firm at 106.25 (discussed last week). USD/JPY closed the week at 106.51.
Live chart of USD/JPY:
Technical lines from top to bottom:
With USD/JPY posting huge losses, we start at lower levels:
110.94 was an important support level in February.
109.90 was a cap for much of April.
108.95 was a cushion in May 2006.
107.39 has switched to a support role following strong losses by USD/JPY.
106.25 marked the start of a dollar rally in October 2014 which saw USD/JPY move above the 121 line.
105.19 was a cushion in October 2014.
104.25 is a strong support line.
102.80 is the final support level for now.
I am neutral on USD/JPY
The dust hasn’t yet settled from Friday’s dismal NFP report, which shocked the markets. This weak release could lead the Fed to remain on the sidelines in June, but a July move remains on the table. The Japanese economy remains weak, and a soft GDP could push the yen down in a hurry.
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