USD/JPY: prepare for the new week
During the past week the bearish trend in USD/JPY continued and was very active. The pair fell to 17-month low just below 107.70. Among the main bearish factors, we should cite decline in the possibility of the Federal Reserve’s rate hike, reduction in the expectations of direct currency interventions by Japanese government, as well as the market’s lack of faith in the Bank of Japan’s ability to weaken the yen.
The bears have been working on the targets of the 125.85/116.00 range, which was broken to the downside in February. We approach the targets of this move and support at 106.60 (38.2% Fibo of the advance from 2011-2015). Then comes the 200-month MA at 105.87, as well as psychologically important level at 105.00. In our view, as long as USD/JPY is trading above 105.00 Japanese central bank will intervene only verbally.
We’ve included Chinese statistics in the next week’s economic calendar for the yen as it will determine the market’s risk sentiment. Japanese yen tends to weaken when the sentiment is good and strengthen in times of risk aversion. Don’t miss China’s inflation figures on Monday, trade balance on Thursday and GDP & industrial production on Friday. According to the forecast, Chinese economic indicators will keep getting worse. In addition, an earnings season begins in the US and the figures should be discouraging. Also note that the IMF will release its updated forecasts for global economy ahead of its meeting on Friday. The source of positive impact on the greenback will stem from US statistics on Wednesday and Thursday – the forecasts are good. All in all, there’s resistance at 109.00, 110.00 and 110.80 and we expect gradual decline from these levels to 106.60/105.00.