USD/JPY Weekly Forecast Dec. 5-9, 2011, Fundamental Analysis

The USD/JPY pair fluctuated last week but it was able to end with gains for the second straight week. The Japanese yen lost momentum against most of its major counterparts due to the optimism that dominated the market.

The EU finance ministers announced the expansion means of the EFSF in order to prevent the debt crisis from spreading to other countries, the move that was coupled with many questions if it will achieve its purpose or not.

On the other hand, global equities rallied last week to cover some of the previous losses, as market sentiment helped investors to increase demand for risky assets on the back of safe haven investment, such as the Japanese yen.

In a coordinated central banks intervention, six major central banks led by the Federal Reserve lowered the borrowing dollar swap rate by 50 basis points for banks, in order to support banks and provide more liquidity into the financial system.

The Central banks intervention eased some concerns regarding the gloomy outlook for the market and the global economy.

The USD/JPY pair’s outlook remains a big puzzle for investors, as any intervention from the Bank of Japan will take the pair higher, while risk aversion could return to FX market as strong as before, which will increase demand for the yen as a safe haven and push the pair to the downside.

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

Monday December 05:

On Monday at 15:00 GMT the U.S. economy will release the ISM Non-Manufacturing for November, where it’s expected to come at 53.5 from the previous reading of 52.9.

On the other hand, Factory Orders for October will be released at the same time and expected to remain flat following 0.3% rise the previous month.

Tuesday December 06:

Both economies will not release any fundamentals on Tuesday, where the pair’s movements will depend on the market sentiment.

Wednesday December 07:

On Wednesday at 05:00 GMT, Japan will issue the preliminary reading for Leading Index for October, where it’s expected to come at 91.5 inline with the previous reading.

The preliminary reading for the Coincident Index for October is expected to rise to 90.2 from 89.

The U.S. economy will release the Consumer Credit for October at 20:00 GMT, where it’s expected to come at $7.00 billion compare to the previous reading of $7.386 billion.

Thursday December 08:

On Thursday at 23:50 GMT (Wednesday), Japan will issue the Current Account Total for October and expected to shrink to a surplus of 1452.2 billion from a surplus of 1584.8 billion yen.

The Adjusted Current Account Total for October is expected to show a surplus of 941.0 billion yen from the prior reading of 1186.6 billion yen, while the Trade Balance is expected to show a surplus of 343.3 billion yen from the previous surplus of 373.2 billion.

At 23:50 GMT the Japanese Machine Orders for October will be released, where it’s expected to come at –7.1% from the prior -8.2%, while the annual Machine Orders is expected to come at 10.6% from the prior 9.8%.

Japan will issue the Eco Watchers Survey Current for November which had a prior reading of 45.9 and expected to come at 46.5, while the Eco Watchers Survey Outlook had a prior reading of 45.9.

At 13:30 GMT the U.S. economy will issue its weekly initial jobless claims numbers, where the number of people filing for first-time claims for the state unemployment insurance increased 402 thousand last week.

The Wholesale Inventories for October will be published at 15:00 GMT, where it’s expected to come at 0.3% compare to the previous reading of –0.1%.

Friday December 09:

On Friday at 23:50 GMT (Thursday), Japan will release the final reading for the third quarter Gross Domestic Product where the previous reading showed that the Japanese economy grew by 1.5%.

The U.S. economy will release the Trade Balance for October, where it’s expected to show a deficit of $44.0 billion widening from the previous deficit of $43.1 billion.

The University of Michigan Confidence for December will be released at 14:55 GMT and expected to slow to 63.0 from 64.1.