USD/JPY Weekly Fundamental Analysis June 25-29, 2012, Forecast

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Introduction: 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. 

  • 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

 

Weekly Analysis and Recommendation:

The USD/JPY ended the week trading above the 80 price level, the strength of the yen was extremely high this week, as investors moved from the USD to gold as safe haven bet, after the Fed announcement which dashed the hopes of additional QE, markets returned to normal, with risk aversion shifting back to the USD. The DX climbed well above 82.00 again. The yen entered the weekend trading at 80.44

Asian markets should generally follow the global tone with two possible exceptions.  One is the risk of nearer-term action by China’s central bank.  Liquidity conditions have tightened meaningfully in China over the past month, with the CHIBOR rates quoted on Bloomberg indicating that markets are starved for cash and expecting the PBOC to do something about it over the next month or two. The 200bps move in overnight CHIBOR (China’s LIBOR) since May (see left side of chart) could well prompt the PBOC to act either via liquidity operations in markets or even possibly outright policy moves, although we think that a reserve ratio cut in July — after the PBOC can gauge how funding conditions look after quarter end — is the most likely path. Second is that Japan issues its major monthly economic releases.  Japanese industrial production is expected to post the sharpest month-over-month decline in over a year while the highest frequency inflation gauges for Tokyo are expected to post ongoing deflation in both headline and core prices excluding food and energy. Retail sales, total household spending, housing starts, and the jobless rate will round out the broad picture for the Japanese economy.

One of the highlights of Japan’s busy data calendar next week (including CPI, retail sales, household spending, unemployment and housing starts) will be the preliminary estimate for industrial production in May, due out on Friday. We anticipate a contraction of 3.2% on a monthly basis to follow April’s 0.2% loss (downwardly revised from +0.2% m/m). It is expected that a high base effect in the auto sector in April, as well as chemical plant shutdowns for inspections in May will drag the headline industrial output figure down. External factors also continue to weigh on Japan’s fragile recovery, including in particular the euro crisis (Japan posted its first-ever trade deficit with the European Union in May), and the resulting risk aversion in global financial markets, which keeps upward pressure on the yen to the detriment of Japanese exporters. Though industrial production will likely rebound to some extent in the months ahead on the back of ongoing reconstruction spending, the fundamental situation in Japan remains quite weak, and volatility in real economic data will continue to reflect this fact. After a strong first quarter in which the economy expanded 4.1% y/y, we expect the pace of growth to moderate, resulting in an average rate of 2% in 2012.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks. 

Major Economic Events for the week of June 19-23, 2012 actual v. forecast

Date

Time

 

Currency

 

Importance

 

Event

Actual

 

Forecast

 

Previous

 

 

Jun. 19

02:30

 

AUD

 

 

 

Monetary Policy Meeting Minutes 

 

 

 

 

 

 

 

 

10:00

 

EUR

 

 

 

German ZEW Economic Sentiment 

-16.9

 

4.0 

 

10.8 

 

 

Jun. 20

09:30

 

GBP

 

 

 

Claimant Count Change 

8.1K

 

-3.0K 

 

-12.8K 

   

 

17:30

 

USD

 

 

 

Interest Rate Decision 

0.25%

 

0.25% 

 

0.25% 

 

 

 

19:15

 

USD

 

 

 

Fed Chairman Bernanke Speaks 

 

 

 

 

 

 

 

 

23:45

 

NZD

 

 

 

GDP (QoQ) 

1.1%

 

0.5% 

 

0.4% 

   

Jun. 21

09:30

 

GBP

 

 

 

Retail Sales (MoM) 

1.4%

 

1.2% 

 

-2.4% 

   

 

13:30

 

CAD

 

 

 

Core Retail Sales (MoM) 

-0.3%

 

0.2% 

 

0.3% 

   

 

13:30

 

USD

 

 

 

Initial Jobless Claims 

387K

 

380K 

 

389K 

   

 

15:00

 

USD

 

 

 

Existing Home Sales 

4.55M

 

4.57M 

 

4.62M 

 

 

Jun. 22

09:00

 

EUR

 

 

 

German Ifo Business Climate Index 

105.3

 

105.9 

 

106.9 

 

 

 

13:30

 

CAD

 

 

 

Core CPI (MoM) 

0.2%

 

0.3% 

 

0.4% 

 

 

  Historical:

Highest: 108.00 on Sep 19, 2008

Average: 87.08 over this period

Lowest: 75.58 on Oct 31, 2011

 

Economic Highlights of the coming week that affect the AUD, JPY, NZD and USD

Date

Time

Currency

Event 

Previous

Jun 25

14:00

USD

New Home Sales

343K

Jun 26

13:00

USD

S&P/CS Composite-20 HPI y/y

-2.6%

14:00

USD

CB Consumer Confidence

64.9

22:45

NZD

Trade Balance

355M

Jun 27

 

 

 

 

 

 

Jun 28

12:30

USD

Durable Goods Orders m/m

0.2%

14:00

USD

Pending Home Sales m/m

-5.5%

14:30

USD

Crude Oil Inventories

 

23:50

JPY

Retail Sales y/y

5.8%

1:00

NZD

NBNZ Business Confidence

27.1

 

 

 

 

 

 

 

 

 

 

 

 

Jun 29

12:30

USD

Unemployment Claims

 

12:30

USD

Final GDP q/q

1.9%

22:45

NZD

Building Consents m/m

-7.2%

23:30

JPY

Household Spending y/y

2.6%

23:30

JPY

Tokyo Core CPI y/y

-0.8%

23:50

JPY

Prelim Industrial Production m/m

-0.2%

1:30

AUD

Private Sector Credit m/m

0.4%

12:30

USD

Core PCE Price Index m/m

0.1%

 

12:30

USD

Personal Spending m/m

0.3%

13:45

USD

Chicago PMI

52.7

13:55

USD

Revised UoM Consumer Sentiment

74.1

 

 

 

 

Upcoming Government Bond Auctions

Date Time Country 

Jun 25  09:10  Norway

Jun 25  09:30  Germany

Jun 25  10:00  Belgium

Jun 25  15:30  Italy

Jun 26  00:30  Japan

Jun 26  08:30  Holland

Jun 26  08:30  Spain

Jun 26  09:10  Italy

Jun 26  09:30  UK

Jun 26  14:30  UK

Jun 26  17:00  US

Jun 27  09:10  Italy

Jun 27  09:10  Sweden

Jun 27  17:00  US

Jun 28  09:10  Italy

Jun28  17:00  US 

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About: FX Empire Analyst - Barry Norman

Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.com

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