USD/JPY Weekly Forecast Dec. 26-30, 2011, Fundamental Analysis

The USD/JPY pair increased last week reaching its highest level in three weeks, but the pair still trading in the same range which contained the pair’s movement for the past four weeks.

The risk aversion game is the main theme for the global financial market, where investors’ confidence determined the trading direction; whether to boost risky assets or to abandon higher-yielding currencies.

However, before the year’s end we witnessed the dollar retreat against most of its major counterparts due to profit taking, which has been taking place before investors start their Christmas holidays.

Narrow range trading is mostly expected for the USD/JPY pair during this week, as the volume will be at its lowest part due to the holidays which will drag investors out of the market.

On the other hand, Japan will issue some important data the jobless rate and CPI, but whatever the readings will be the market will not respond as it should be.

The current market sentiment improved slightly on the back of the cheerful U.S. news, but caution still exists as the EU debt crisis is still the focus.

Major highlights for this week that will affect the USD/JPY pair’s trading:

Monday December 26:

Christmas Monday, markets closed.

Tuesday December 27:

On Tuesday at 05:00 GMT, Japan will issue the annual Construction Orders for November, where the previous reading was up by 24.3%, on the other hand the Annualized Housing Starts for November is expected to come at 0.802 million from the prior 0.774 million.

On Tuesday at 15:00 GMT, the U.S. economy will release the Consumer Confidence for December, where it’s expected to rise to 58.5 from the previous reading of 56.0.

Wednesday December 28:

On Wednesday at 23:30 GMT (Tuesday), Japan will release the Jobless Rate for November, where it’s expected to hold at 4.5%.

The yearly National CPI for November is expected to drop to 0.4% from the previous –0.2%, wile the National CPI excluding fresh food is expected to drop by 0.2% compare to the prior reading of –0.1%.

At 23:50 GMT, the Japanese Retail Trade for November will be published, where the previous reading was up by 1.4% and it’s expected to drop to –0.5%, on the other hand, the annual reading is expected to come at 0.0% from the prior 1.9%.

The Industrial Production for November will be due at the same time, where it’s expected to come at –0.8% from the previous of 2.2%, while the annual reading is expected to come at –2.0% from the prior reading of 0.1%.

Thursday December 29:

On Thursday at 13:30 GMT, U.S. economy will issue its weekly initial claims numbers, where the number of people filing for first-time claims for the state unemployment insurance dropped to 364 thousand last week.

The U.S. economy will issue the Chicago Purchasing Manager for December at 14:45 GMT, where the prior reading was 62.6 and it’s expected to come at 60.2.

At 15:00 GMT, Pending Home Sales for November will be and expected with 1.8% rise after 10.4%.

Friday December 30:

On Friday, both economics will not issue any fundamental, where the pair’s movement will depend on the market sentiment.