USD/JPY Forecast: Will the news get worse?

• USD/JPY rises moderately on risk aversion.
• Dollar improvement comes despite equity and Treasury yield declines.
• US NFP loss 0f 701,00 dominates statistics

The US/JPY finished higher on the week, though it remains well below its peaks of mid and late March, as moderate risk aversion still orders markets.  From Wednesday’s low of 106.92 the pair rose on Thursday and Friday to the high close at 108.54.

Once again the action and markets were almost exclusively US dollar based and driven by developments in the pandemic and its global economic repercussions.

American job numbers dominated the statistical week. The near record loss of 701,00 jobs last month, only the 800,000 plunge in March 2009 was greater, is the just the beginning as US job numbers track the nearly instantaneous labor market catastrophe prompted by the Coronavirus pandemic.

Currencies

The dollar maintained its position as the safety choice of markets as the difficult economic news from the United States and Europe took on concrete shape.  On the week the US currency gained 0.5% versus the Japanese yen, 1.62% against the Canadian dollar, 3% against the euro and 2.8% versus the Australian dollar.  Only in opposition to the British pound did it lose, 1.47%.

The USD/JPY is positioned between the extremes of 112.00 and 111.00 in the third weeks of February and March and the low of 103.00 on March 9 and 10.  With that rapid and recent movement there is plentiful support and resistance lines to consider in periods of non-fundamental trading.

Equities

Dollar recovery also came despite global equity losses. Japanese equites equities dropped 8% from Friday to Friday, with the Nikkei 225 ending at 17,820.

US Stocks had another negative week on economic woes as he Dow dropped 360 points, 1.69% to 21,502 on Friday. It was down 2.7% on the week, its third losing week in four, and 26.2% on the year. It is 28.8% below its all-time high of 29,568 on February 12 of this year.

The S&P 500 finished off 1.51% for its third negative day in four.  On the week the average lost 2.08% also its third down week in the last four. On the year it has shed 22.97% and is 26.66% below its record of 3,393.52 from February 19. Both averages could easily surpass 2008 as their worst year when the S&P lost 38.5% and the Dow 33.6%.

Bonds yields and WTI

Japanese sovereign rates were little changed on the week. The 10-year JGB closed on Friday March 27 at 0.013%, moved as high as 0.023% at Tuesday’s finish and ended the week at 0.003%.

 Treasury yields in the US and commercial interest rates continued to slip as the Federal Reserve purchase program begun after the emergency March 15 meeting pushed bond prices higher and returns lower. The 10-year closed at 0.599% on Friday down from the 0.676% open on Monday. The 2-year yield lost 1 basis point on the week starting at 0.228% on Monday and finishing at 0.227% on Friday.

The average rate for a 30-year fixed mortgage dropped to 3.33% last week down 17 basis points. Together with the prior week’s decline it was the largest two-week decline since December 2008 when the Fed surprised the financial with its first-ever program buying mortgage-backed securities.

West Texas Intermediate (WTI, Clc1) had it best week in history record rising 31.75% and adding 11.93% on Friday finishing at $28.34. Nonetheless it remains down 53.59% on the year its worst performance since the start of this futures contract in 1983

Japanese statistics March 30–April 3

Tuesday

Japan’s unemployment rate was unchanged at 2.4% in February. The preliminary reading for industrial production (Y/Y) in February was -4.7% slightly better than the -5.5% forecast but still the fifth negative month in a row. On the month it rose 0.4% with a 0.1% predictions and a 1% gain in January.  Retail trade rose 0.6% in February far ahead of the -0.9% projections, annual trade gained 1.7% on a -1.2% estimate.

Wednesday

The Tankan Survey from the Bank of Japan for the first quarter was better than forecast for large manufacturers’ outlook, -11 vs. -14, and in the index -8 vs -10, better for non-manufacturing industries in the index 8 vs 6, and worse in outlook at -1 vs 2. While the Tankan is a widely followed indicator the first quarter information is wholly out of date in the current situation.

FXStreet

Japanese statistics April 6-10

Tuesday

Coincident Index for February is expected to drop to 95.1 from 95.2 and the leading Economic Index to slip to 90.4 from 90.5.

Wednesday

The Eco Watchers Survey from the Cabinet for March.  It was 24.6 in outlook and 27.4 in current situation in February.

Thursday

March consumer confidence from the Cabinet office. It was 38.4 in February

Friday

Producer price index for March is predicted to fall 0.7% on the month and 0.1% on the year from -0.4% and 0.8% in February.

FXStreet

Japan statistics conclusion

Industrial production was riding a five month losing streak in February before the global viral shutdown and though retail trade in February and the Tankan Survey were better than predicted neither chronicle the impact of China’s economic closures in March.

Three statistics from last month, the Eco watchers Survey, consumer confidence and PPI will put some numbers on what is expected to be a unpleasant time for the Japanese economy.

US statistics March 30-April 3

Tuesday

Redbook index for the week of March 27 rose 6.3% on the year and 1.3% on the month from 9.1% and 1.7% in February.

Conference Board consumer confidence fell to 120 in March from 132.6 in February, beating the 110 estimate but the Conference Board warned of likely future declines.

Wednesday

ADP private payrolls shed 27,000 positions, less than the -150,000 forecast but the discrepancy was attributed to delayed reporting.

Manufacturing PMI was better than expected in March at 49.1, 45 had been predicted, but returning the sector to contraction. New orders dropped to 42.2 from 49.8 and employment slipped to 43.8 from 46.9.

Thursday

Challenger announced layoffs for March surged to 222,288 from 56,660 in February.

Initial jobless claims for the week of March 27 shredded all expectations at 6.648 million almost doubling the 3.5 million estimate and making the two-week total 9.931 million.

Friday

Non-farm payrolls dropped 701,000, capturing more of the last month’s layoffs than had been expected and the surge is projected to continue in April and in March revisions.  The unemployment rate (U-3) rose to 4.4% from 3.5% and the underemployment rate (U-6) climbed to 8.7% from 7.1%. Annual average hourly earnings added 0.1% to 3.1%.

FXStreet

US statistics April 6-10

Tuesday

Redbook index of large retail same store sales in the April 3 week.

Wednesday

FOMC minutes of the unscheduled March 15 meeting which cut the fed funds rate by 1% to 0.25%.

Thursday

Initial jobless claims for the week of April 3. After two weeks totaling 9.931 this is the statistic to watch.

Michigan consumer sentiment index preliminary for April, 75 is expected down from 89.1 in March.

FXStreet

US statistics conclusion

The speed of the labor market collapse has left most statistics wholly out of date. For the week ahead the FOMC minutes will give an indication of the Fed governors' information and concerns at mid-month. Initial jobless claims will be the most watched and instructive of the depth of  the job market pain and an indication of the statistical debacle likely to follow.

USD/JPY technical outlook

The relative strength index (RSI) is almost a regular sine wave over the past two weeks as the movement in the USD/JPY has ascended and fallen in a somewhat regular pattern leaving the RSI reversion exactly at neutral 50 this week (50.3436).

The longer moving averages 100-day and 200-day are also neutral for the same reason with the 21-day colored into a slight uptick by Thursday's and Friday's gains. 

The extensive movement of the last six weeks has left plentiful lines of support and resistance with the caveat that in fundamental markets technical considerations are easily trumped by market developments. and news.

Resistance: 109.00, 109.35, 109.60, 110.20, 110.80, 111.25

Support: 107.85, 107.10, 106.60, 105.70, 105.00, 104.50, 104.00, 103.00

USD/JPY sentiment poll

The waning of the safety dollar may be beginning in this week's sentiment poll. From the three faces of the bull last week in all time frames we have one remaining, the one-week. The the one month has moved to neutral and the one quarter has turned bearish. 

When markets are subject to extremes of risk consideration by external factors, the news flow eventually habituates and becomes less able to move trading without ever more dire developments. A similar evolution occurred in the fall and winter of 2008-2009. The question is will the news get worse?