USD/JPY Weekly Fundamental Analysis February 13-17, 2012, Forecast

Economic Events:  (GMT)

Please check the daily forecast for details on all economic events.

Major Economic Events of the Week

USD/JPY Weekly Fundamental Analysis February 13-17, 2012, Forecast

Rule:

The USD/JPY foreign currency exchange rate is the price of one U.S. dollar – the base currency – in terms of Japanese yen – the quote currency. For example, a bid/ask quote of 89.29/89.32 means that one U.S. dollar can be bought for 89.32 yen and one U.S. dollar can be sold at 89.29 yen.

If the U.S. dollar is expected to appreciate against the yen, then the above quote might rise to say, 89.73/89.76. The forex strategy in this case would be to buy USD/JPY. If, on the other hand, the U.S. dollar is expected to depreciate against the yen, then the above quote might fall to say, 88.68/88.71. The forex strategy in this case would be to sell USD/JPY.

In the USD/JPY trade, trying to pick tops or bottoms during that time would have been difficult. However, with the bull trend so dominant, the far easier and smarter trade was to look for technical opportunities to go with the fundamental theme and trade with the market trend rather than to trying to fade it.

Against the Japanese yen, whose central bank held rates steady at zero, the dollar appreciated 19% from its lowest to highest levels. USD/JPY was in a very strong uptrend throughout the year, but even so, there were plenty of retraces along the way. These pullbacks were perfect opportunities for traders to combine technicals with fundamentals to enter the trade at an opportune moment. 

Daily range average : 80-90 pips
Best time to trade: Asian Session (2400 GMT – 0900 GMT) 
Some factors affecting the USD/JPY rate: 

• The interest rate differential between the Bank of Japan(BoJ) and the Federal Reserve
• Japanese government intervention to maintain their currency sends USD/JPY lower

Analysis and Recommendation:

The USD/JPY ended the week at 77.61 following the lead of the USD trading partners.

News of BoJ intervention had slight effects on the market as the intervention had already taken place secretly. 

The yen trade all week based on the USD movement and news from Greece. Little notice was made of technical or fundamental analysis. This week will probably do the same.

The dollar has continued to gather strength against all of its partners, as worries about Greece continue to grow. 

The Greek Finance Minister was sent packing back to Greece. The original news stated that the EU was demanding final legislation of the austerity measures before they would consider the approval of the bailout and that they did not want promises. Further news seemed to indicate that the political agreements were short, even with the ECB’s added contributions and agreements to reduce their asset valued.

Most recent reports said that Germany made it clear that Greece missed its debt target and must increase its austerity measures to qualify for the second economic bailout package.

The German Finance Ministry went on to state, “The Greek offer is not sufficient and they have to go away to come back with a revised plan.” 

All eyes will be on the Federal Reserve officials to determine if the current policy is viable given the strong recent jobs reports, many Fed watchers are skeptical that the current stated policy to keep interest rates low until 2014 will in fact come to pass. Speeches Tuesday by Philadelphia Fed President and Atlanta Fed President may give insight if there is any concern within the Federal Reserve about the stated policy.

The Federal Open Market Committee also releases minutes of its Jan. 26 meeting on Wednesday, and Fed Chairman Ben Bernanke will speak at the Federal Deposit Insurance Corp. conference on community banking Thursday. (Watch gold)

Retail sales figures are due Tuesday, housing starts and Philadelphia Fed index data Thursday and consumer price index figures Friday. It will be a busy week for the USD.

This coming week, investors will be watching, Greece carefully, but many observers, think that a default has already been factored in the markets and that all the banks have been secured and alternative arrangements made. The problem comes about with contagion, and the future of other countries needing bailout. Ireland has already stated that based on successful negotiations with the Greeks that they want to go back to the table and renegotiate their bailout arrangements, not looking for more funding but they want the same interest and arrangements made with the Greeks.

The USD should remain up this week and should continue off the back of the unemployment reports last week, but with the Fed Chairman speaking, you never know exactly what will happen. This week keep an eye on Greece and an ear on the Fed.

The Strength

1) Initial Jobless Claims fall to 358k, 12k less than expected and the 4 week average drops to 366k, the least since May ’08
2) Job Openings in monthly BLS data rise to match the highest since Sept ’08
3) MBA said avg 30 yr mortgage rate falls to new low of 4.05% and refi’s jump 9.4%
4) German Factory Orders in Dec rise a bit more than expected
5) China’s PPI moderates to a gain of just .7% y/o/y, the slowest rate since Nov ’09
6) Indonesia unexpectedly cuts rates to 5.75% while RBA and SK sit pat

The  Weakness

1) Greece on brink, AGAIN, unemployment rate in Nov hits 20.9% from 18.2% in Oct
2) German exports in Dec, the main driver of their economy, falls 4.3% m/o/m vs an expected decline of just 1%, German IP falls 3% vs est of flat from Nov
3) Euros being redeposited with the ECB overnight remain around 500b, matching the amount borrowed under the LTRO
4) BoE votes for more QE, brings asset purchase program up to 325b pounds.

Economic Reports for the previous week forecast v actual

Sovereign Bond Auction Schedule Feb 13-17

Feb 13  10:10  Italy   BOT auction

Feb 13  10:10  Norway  T-bill auction

Feb 13  10:30  Germany  Eur 4.0bn Aug 2012 Bubill

Feb 13  12:00  Norway  Details bond auction on Feb 20

Feb 14  09:30  Netherlands Eur 3.0bn-4.0bn Jan 2017 DSL

Feb 14  09:30  Spain  12 & 18M T-bill auction

Feb 14  10:10  Greece  3M T-bill auction

Feb 14  10:10  Italy   BTP/CCTeu auction

Feb 14  10:30  Belgium  Auctions 3 & 12M T-bills

Feb 15  10:10  Sweden  Auctions T-bills

Feb 15  10:30  Portugal  Eur 1.5-1.75bn May & Aug T-bills

Feb 16  09:30  Spain  Obligacion auction

Feb 16  10.30  UK  Auctions 4.5% 2034 conventional Gilt

Feb 16  10:50  France  BTA/OATi auction

Feb 16  16:00  US

Announces auctions of 2Y Notes on Feb 21, 5Y Notes on Feb

22 & 7Y Notes on Feb 23

Feb 16  18:00  US  Auctions 30Y TIPS