USD/JPY Weekly Fundamental Analysis March 5-9, 2012, Forecast

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Rule: 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

Analysis and Recommendation:

The USD/JPY last week tumbled to an almost nine-month low against the dollar after the Bank of Japan on Feb. 14 unexpectedly added ¥10 trillion to an asset-purchase program and set an inflation goal of 1 percent. The yen is trading at this writing at 81.80 and should hold here until release of US data mid week

Last week, USD/JPY extended the impressive post BOJ rally. The move was clearly in the first place due to yen weakness, rather than dollar strength. The trade-weighted dollar even lost some ground on a weekly basis. The USD/JPY got also no support from rising core bond yields last week. A reasonably positive sentiment on risk reinforced the rally. USD/JPY reached a new recovery high at 81.67 on Monday morning February 27. In this respect, the augmentation of the amount of BOJ asset purchases and especially the installation of a 1% inflation target proved to be a more efficient weapon than interventions on the currency market.  Of course at some point, the current rally will have incorporated that new policy approach of the BOJ. On February 01, USD/JPY was still near to 76.00 area. Given the limited price swings that we had become used to in this cross rate of late, the gains of the previous four weeks are impressive. So, there might be room for a correction. After the policy change of the BOJ, we also look out which currency will has become the preferred safe haven in case of a deterioration in sentiment on risk. The jury is still out but with market probably long USD/JPY after the recent change in the approach of the BOJ, we wouldn’t be surprised if the first correction would be rather violent, too. That said, the BOJ applying an inflation target is a potential game changer. So, we maintain a USD/JPY positive bias longer term. At some point, the pair might also still get support from a further improvement of US eco data and higher US bond yields. We maintain a buy on-tips strategy as long as the pair is holding above the 78.29 range top. On the top side 82.23 (19May high), is the next high profile target on the charts.

Only Good News from the US:

Existing home sales US existing home sales picked up unexpectedly in January, but the previous figures were downwardly revised. 

Initial jobless claims US initial jobless claims stayed unchanged in the week ending February the 18th, while the consensus was looking for an increase.

University of Michigan consumer confidence The final figure of Michigan consumer confidence for February showed a strong upward, revision from 72.5 to 75.3, while only a minor one was expected.

New home sales After increasing for four consecutive months, US new home sales dropped at the start of 2012. 

Federal Reserve Chairman Bernanke testified before the Senate, this week, the markets found his comments a bit dovish and drew conclusions that any additional QA was off the table for the time being. Although the Chairman warned that the economy was recovering, he stated it was fragile and he was still worried about jobs. Gold soared on his comments.

News from the Eurozone

This week starts off with an agreement on the Greek bailout and approval from the EU, ECB and IMF. Greece passes a major hurdle and now needs to complete their agreement with the IIF.

There are worries about the CDS swaps triggering a credit event, at first, the initial ruling ruled that there would be no credit event, but it turns out that ruling was on a very small question concerning the ECB, it seems now that now that Greece has passed the new laws so they can force bondholders to accept the agreement, it will now trigger a credit event and CDS insurance will have to payout.

The ECB, liquidity operation, although successful, loans funds to over 800 banks, in excess of 500 billion euros. Markets are now worried about the consequences.

Spain reported that they will miss their budget deficit target this year, but still remain on track for 2013.

The EU approved the next tranche for Portugal.

The G20 meeting in Mexico ended without any results with non euro nations saying that the eurozone needs to pick up their game and show their money before any others would consider participating.

The EU Summit this past week went off quietly without much in the way of announcements.

 Consumer confidence European Commission’s consumer confidence improved for a second straight month in February. Consumer confidence rose from -20.7 to -20.2, marginally  weaker than expected (-20.1).

Industrial new orders  Euro zone industrial new orders rebounded by 1.9%  M/M in December, while only a moderate pick up was expected.

IFO business climate indicator The German IFO index rose for a fourth consecutive month in February. The indicator jumped from 108.3 to 109.6, while a more moderate increase was expected.

Manufacturing PMI Euro zone manufacturing PMI extended its rebound in  February, rising for a third consecutive month, but at a  slower pace.  Services PMI After three consecutive increases, euro zone services PMI fell back in February, from 50.4 to 49.4, while a  slight increase was expected.

In January, the euro zone unemployment rate rose unexpectedly. The unemployment rate jumped from an upwardly revised 10.6% (earlier reported as 10.4%) to 10.7%, while the consensus was looking for stabilization at 10.4%. Eurostat estimates that the number of people unemployed rose by 185 000 in the euro area in January, to a total level of 16.925 million. The highest unemployment rates were observed in the Spain (23.3%), Greece (19.9% in November), Ireland and Portugal (both 14.8%). The youth unemployment rate (under 25) was 21.6% in the euro zone. The euro zone unemployment rate is now at the highest level since October 1997 and is just 0.2% below its all time high, suggesting that a jump above the all-time highs is not excluded in the coming months.

News from the Far East

In Australia Prime Minister Gillard won her battle against ex Prime Minister Rudd, who is now retiring from public life.

China’s official purchasing managers’ index (PMI) rose to 51.0 from 50.5 in January.

China also signaled this week that they are considering offering assistance to the EU and the EFSF.

Japan’s unemployment rate inched up to 4.6 per cent in January from a revised 4.5 per cent in the previous month, the government said on Friday. The figure was roughly in line with economists’ forecasts.

The ministry also said January household spending fell by an inflation-adjusted 2.3 per cent year-on-year. The fall was bigger than a 0.8 per cent drop economists had expected.

Japan refrained from selling yen in the foreign-exchange market last month, according to the Finance Ministry.The nation didn’t sell any of its currency from Jan. 30 to Feb. 27, the ministry’s month-end data posted on its website shows.

 

Economic Events:  (GMT)

Mar. 05

00:30

 

AUD

 

 

 

Company Gross Operating Profits

 

 

 

 

 

 

 

 

15:00

 

USD

 

 

 

ISM Non-Manufacturing Index 

 

 

 

 

 

 

 

Mar. 06

00:30

 

AUD

 

 

 

Current Account 

 

 

 

 

 

 

 

 

03:30

 

AUD

 

 

 

Interest Rate Decision 

 

 

 

 

 

 

 

 

03:30

 

AUD

 

 

 

RBA Rate Statement 

 

 

 

 

 

 

 

Mar. 07

00:30

 

AUD

 

 

 

GDP (QoQ) 

 

 

 

 

 

 

 

 

13:15

 

USD

 

 

 

ADP Nonfarm Employment Change 

 

 

 

 

 

 

 

 

13:30

 

USD

 

 

 

Nonfarm Productivity (QoQ) 

 

 

 

 

 

 

 

 

13:30

 

USD

 

 

 

Unit Labor Costs (QoQ) 

 

 

 

 

 

 

 

 

20:00

 

NZD

 

 

 

Interest Rate Decision 

 

 

 

 

 

 

 

 

20:00

 

NZD

 

 

 

RBNZ Rate Statement 

 

 

 

 

 

 

 

 

20:00

 

NZD

 

 

 

RBNZ Monetary Policy Statement 

 

 

 

 

 

 

 

 

23:50

 

JPY

 

 

 

GDP (QoQ) 

 

 

 

 

 

 

 

 

23:50

 

JPY

 

 

 

GDP Price Index (YoY) 

 

 

 

 

 

 

 

Mar. 08

00:30

 

AUD

 

 

 

Employment Change 

 

 

 

 

 

 

 

 

00:30

 

AUD

 

 

 

NAB Business Confidence 

 

 

 

 

 

 

 

 

00:30

 

AUD

 

 

 

Unemployment Rate 

 

 

 

 

 

 

 

 

Tentative

 

CNY

 

 

 

Chinese Trade Balance 

 

 

 

 

 

 

 

 

13:30

 

USD

 

 

 

Initial Jobless Claims 

 

 

 

 

 

 

 

 

13:30

 

USD

 

 

 

Continuing Jobless Claims 

 

 

 

 

 

 

 

 

19:00

 

USD

 

 

 

Federal Budget Balance 

 

 

 

 

 

 

 

Mar. 09

00:30

 

AUD

 

 

 

Trade Balance 

 

 

 

 

 

 

 

 

02:00

 

CNY

 

 

 

Chinese CPI (YoY) 

 

 

 

 

 

 

 

 

02:00

 

CNY

 

 

 

Chinese Fixed Asset Investment (YoY) 

 

 

 

 

 

 

 

 

02:00

 

CNY

 

 

 

Chinese Industrial Production (YoY) 

 

 

 

 

 

 

 

 

02:00

 

CNY

 

 

 

Chinese PPI (YoY) 

 

 

 

 

 

 

 

 

02:00

 

CNY

 

 

 

Chinese Retail Sales (YoY) 

 

 

 

 

 

 

 

 

13:30

 

USD

 

 

 

Average Hourly Earnings (MoM) 

 

 

 

 

 

 

 

 

13:30

 

USD

 

 

 

Nonfarm Payrolls 

 

 

 

 

 

 

 

 

13:30

 

USD

 

 

 

Trade Balance 

 

 

 

 

 

 

 

 

13:30

 

USD

 

 

 

Unemployment Rate 

 

 

 

 

 

 

 

 

13:30

 

USD

 

 

 

NY Empire State Manufacturing Index 

 

 

 

 

 

 

 

 

13:30

 

USD

 

 

 

Private Nonfarm Payrolls 

             

 

1st of the month global economic data releases actual v. forecast

 

AUD

 

 

 

Building Approvals (MoM) 

0.9%

 

2.1% 

 

-1.0% 

 

 

 

AUD

 

 

 

Private New Capital Expenditure (QoQ) 

-0.3%

 

3.9% 

 

14.6% 

   

 

INR

 

 

 

Indian Trade Balance 

-14.8B

 

-11.0B 

 

-12.7B 

 

 

 

CHF

 

 

 

GDP (QoQ) 

0.1%

 

-0.1% 

 

0.3% 

   

 

GBP

 

 

 

Nationwide HPI (MoM) 

0.6%

 

0.3% 

 

-0.3% 

   

 

CHF

 

 

 

SVME PMI 

49.0

 

48.5 

 

47.3 

 

 

 

EUR

 

 

 

French Manufacturing PMI 

50.0

 

50.2 

 

50.2 

 

 

 

EUR

 

 

 

German Manufacturing PMI 

50.2

 

50.1 

 

50.1 

 

 

 

EUR

 

 

 

Manufacturing PMI 

49.0

 

49.0 

 

49.0 

 

 

 

PLN

 

 

 

Polish GDP (YoY) 

4.3%

 

4.2% 

 

4.2% 

 

 

 

GBP

 

 

 

Manufacturing PMI 

51.2

 

52.0 

 

52.0 

   

 

EUR

 

 

 

CPI (YoY) 

2.7%

 

2.6% 

 

2.6% 

 

 

 

EUR

 

 

 

Unemployment Rate 

10.7%

 

10.4% 

 

10.6% 

   

 

USD

 

 

 

Core PCE Price Index (MoM) 

0.2%

 

0.2% 

 

0.1% 

   

 

CAD

 

 

 

Current Account 

-10.3B

 

-9.6B 

 

-12.3B 

   

 

USD

 

 

 

Personal Spending (MoM) 

0.2%

 

0.4% 

 

0.0% 

 

 

 

USD

 

 

 

Initial Jobless Claims 

351K

 

353K 

 

353K 

   

 

USD

 

 

 

Continuing Jobless Claims 

3402K

 

3400K 

 

3404K 

   

 

USD

 

 

 

ISM Manufacturing Index 

52.4

 

54.6 

 

54.1 

 

 

 

USD

 

 

 

Fed Chairman Bernanke Testifies 

 

 

 

 

 

 

 

 

KRW

 

 

 

South Korean CPI (YoY) 

3.1%

 

3.5% 

 

3.4% 

 

 

 

JPY

 

 

 

Unemployment Rate 

4.6%

 

4.5% 

 

4.6% 

 

 

 

JPY

 

 

 

Tokyo Core CPI (YoY) 

-0.3%

 

-0.4% 

 

-0.4% 

 

 

 

Government Bond Auction Schedule

Mar 05  10:10  Norway  Bond auction

Mar 06  10:10  Greece  Auctions 6M T-bills

Mar 06  10:15  Austria  Bond auction

Mar 06  10.30  UK  Auctions 0.75% 2034 I/L Gilt

Mar 06  15:30  UK  Details gilt auction on Mar 15

Mar 07  10:10  Sweden  Nominal bond auction

Mar 07  10:30  Germany  Eur 4.0bn Feb 2017 Bobl

Mar 07  10.30  UK  Auctions new Sep 2017 conventional Gilt

Mar 08  16:00  US

Announces auctions of 3Y Notes on Mar 12, 10Y Notes on Mar

13 & 30Y Bonds on Mar 14

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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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