USD/JPY Weekly Forecast Jan. 02-06, 2012, Fundamental Analysis

The USD/JPY pair dropped last week to its lowest level in three weeks, where the risk aversion returned to the FX market with the end of last week, pushing the Japanese yen to the upside against most of its major counterparts.

The US dollar also soared against the euro reaching its highest level in more than a year, after the ECB announced that its balance sheet has soared after it lent more money to the financial institutions.

The USD/JPY pair is expected to trade in a narrow range with the beginning of the this week, as the New Year holiday dragged investors out of the FX market, which will reduced liquidity in the market.

The Feds will release the FOMC minutes for December 13 meeting during the week, where the central bank will clear the reasons behind maintaining the monetary policy unchanged.

The FOMC minutes could have a little effect on the pair’s movements due to the thin trading and the lower volume in the financial market, as we expected the narrow rang trading will dominate the market.

The expectations for the New Year still not clear, as the EU debt crisis still the main theme in the financial market, which will keep the risk aversion scenario fueled in the market.

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

Monday January 02:

On Monday, both economics will not issue any fundamental due to the New Year holiday, where low volume will dominate the pair’s movement.

Tuesday December 03:

On Tuesday at 15:00 GMT, the U.S. economy will release the Construction Spending for November, where the previous reading was 0.8% and it’s expected to come at 0.5%.

The ISM Manufacturing for December will be up at the same time, and it’s expected to come at 53.2 from the prior 52.7.

On the other hand, the Federal Reserve Bank of America will release the FOMC minutes for Dec. 13 meeting at 19:00 GMT, where the bank statement will affect the pair’s movements.

Wednesday December 04:

On Wednesday at 12:00 GMT, the American Factory Orders for November will be published, where the expectations refer to 2.0% from the previous drop of 0.4%. While the Total Vehicle Sales for December is expected to come at 13.50 million from the prior 13.59 million.

Thursday December 05:

On Thursday at 05:00 GMT, the Japanese economy will issue the annual Vehicle Sales for December, where it had a previous reading of 24.1%.

The U.S. economy will release the ADP employment change for August at 13:15 GMT, where it’s expected to come at 165 thousands from the previous reading of 206 thousands.

At 12:30 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 increased 381 thousand last week.

On the other hand, the ISM Non-Manufacturing for December will be up at 15:00 GMT, where it had a previous reading of 52.0 and it is expected to come at 53.0.

Friday December 06:

The United States of America will issue a number of economic data on Friday, starting with the non-farm payrolls at 13:30 GMT, which is expected to show that the U.S. economy has added 150 thousand jobs during the month of December compared with the previous reading of 120 thousand jobs.

Unemployment rate during the month of December is expected to increase to 8.7% from the prior of 8.6%, while the yearly average hourly earnings index is expected to advance by 2.1% from the previous reading of1.8%.

Any improvement in new jobs in the United States could drive the dollar to raise more against the Japanese yen, as it reflect the strongest recovery in employment sector and the U.S. economy as whole.