USD/JPY Weekly Forecast: Yen bucks the trend

• USD/JPY gains on the week with improved US statistics.
• Japanese data for July weakens economic outlook and yen.
• US Treasury yields rise supporting USD/JPY.

Japanese and US statistics headed in opposite directions making the USD/JPY the only major pair to see dollar improvement this week.

The Eco Watchers Survey for current Japanese conditions, a  production of the cabinet office that follows regional economic trends, came in at 41.1 for July, considerably under the 46.6 forecast though up from June’s 38.8 score.  The same survey for the immediate economic outlook was even more disappointing registering 36 on a 48.8 prediction and a drop from the 44 reading in June.  The Tuesday release saw the USD/JPY open at 105.97 and close at 106.49, the largest gain of the week.

In the US initial jobless claims fell to 0.963 million in the first week of August, the lowest of the Covid era. Retail sales rose 1.2% in July for the third positive month in a row.  This brought the margin of retail sales recovery over the pandemic collapse to 4.89% overall or 1.63% monthly for May through July.  In a normal economy that would be considered a sign of an excellent consumer sector.

The retail sales control group rose 1.4% on the month, beating the 0.8% forecast.  Sales in June were revised higher for all three groups with the headline number adding 0.9% to 8.4%, the control group 0.4% to 6% and the ex-autos number 1% to 8.3%.

Treasury yields rose on the US data with the 10-year adding 14 points on the week to 0.709% and the two-year gaining 2 points to 0.149%.  

USD/JPY outlook

The rise in USD/JPY from 105.92 to 106.60 this week was not as uncharacteristic as it might seem. Though the dollar fell against all the other majors, the declines were small.  The euro rose 54 points from the 1.1788 open on Monday to the 1.1842 close on Friday, the sterling gained 34 points ending at 1.3086, the Aussie 9 points to 0.7170.  The USD/CAD was the biggest loser dropping from 1.3384 to 1.3260.

Technically the USD/JPY crossed the 106.00 and 106.50 resistance lines this week and finishing at 106.60 is poised below three more at 106.80 and 107.00 and 107.30.

The USD weakness over the past month has been based on the supposed economic impact of the second wave of Covid cases in a number of large US states. From the data so far, jobless claims, non-farm payrolls and retail sales, it appears the slowdown was minimal if at all.  With a similar rise in positive diagnoses occurring in many European countries and Australia and New Zealand, the economic concern may soon be shifting back to the other side of the dollar pairs.  

As the data divergence continues expect the dollar to make further gains.

Japan statistics August 10-August 14

Monday

Bank lending rose 6.3% on the year in July on a 6.5% forecast and June’s 6.2%.

Tuesday

Eco watchers outlook registered 36 in July much worse than the 48.2 forecast and the prior reading of 44. The current survey scored 41.1 on a 46.6 prediction and previous of 38.8.

Wednesday

Producer price index for July rose 0.6%, double the 0.3% estimate and the same as in June. Annual PPI fell 0.9%, less than the 1.1% forecast and June’s 1.6% decline

Friday

The Tertiary Index which tracks the service sector rose 7.9% in June after falling 2.9% in May.

FXStreet

US statistics August 10-August 14

Tuesday

Producer prices rose 0.6% in July, twice the forecast, after falling 0.2% in June.  Annual prices fell 0.4% in July, less than the -0.7% and June's 0.8% drop. Core PPI rose 0.5% on a 0.1% forecast and 0.3% drop in June. Annual core PPI rose 0.3% on a flat forecast and 0.1% gain in June.

Wednesday

CPI rose 0.6% in July, the same as in June and twice the 0.3% predictions. Annual prices gained 1%, on a 0.8% estimate and a 0.6% rise in June. Core CPI rose 0.6% in July, three times the estimate and the June result. Annual core CPI gained 1.6% on a 1.1% prediction and a 1.2% release for June. 

Thursday

Initial jobless claims in for August 7 rose 0.963 million far less than the 1.120 prediction and the prior week’s 1.191 million. Continuing claims fell to 15.486 million in the July 31 week, far less than the 15.898 million forecast and the 16.09 million the previous week.

Friday

Retail sales rose 1.2% in July missing the 1.9% forecast. The June figure was revised to 8.4% from 7.5%. Sales ex-autos climbed 1.9% on a 1.3% estimate. June’s result was revised to 8.3% from 7.3%.  The control group rose 1.4%, on an 0.8% projection. The June figure was adjusted to 6% from 5.6%.

Industrial production added 3% in July as in June. The forecast was flat. Capacity utilization rose to 70.6%, ahead of the 70.3% forecast and a large move from June’s 68.5% score.

Non-farm productivity rose 7.3% in the second quarter almost 5 times the 1.5% forecast following the 0.3% drop in the first quarter. It was the largest gain in 11 years.

Michigan consumer sentiment’s preliminary reading edged to 72.8 in August from 72.5 in July. The forecast was 72.

FXStreet

Japan statistics August 17-August 21

FXStreet

US statistics August 17-August 21

FXStreet

USD/JPY technical outlook

The steady move higher brought the USD/JPY above 50 from Tuesday on, the first sustained  move into the upper half of the band since early June.  The 21-day average has not recovered from the late July swoon and at 106.14  offers support to the 106.00 line. The 100-day at 107.22 fronts the 107.30 resistance and the 200-day at 108.12 adds weight to the resistance at 108.00.

Resistance lines are more numerous and closely spaced due to the four months from late March to late July when 108.50 to 106.00 defined the range. Except for the recent drop below 106.00 from July 27 to August 11 the prior visit south of 106.00 was  in the panic of early March. 

Resistance: 107.00; 107.30; 107.60; 107.80; 108.00; 108.50

Support: 106.50; 106.00; 105.50; 104.75; 104.00

USD/JPY sentiment poll

                                                                The near forecast is within range with just the resistance at 107.00 to cross making it a likely early week event. The lack of conviction in the one month and the one quarter views is striking given the better than expected US statistics this week and the distinct possibility that the improvement in jobless claims will continue and prospective sales gains in the housing market with mortgage rates at record lows.