USD/JPY Weekly Fundamental Analysis April 23-27, 2012, Forecast

By FXEmpire.com

Introduction: In the USD/JPY trade, trying to pick tops or bottoms during that time would have been difficult. However, with the bull trend so dominant, the far easier and smarter trade was to look for technical opportunities to go with the fundamental theme and trade with the market trend rather than to trying to fade it.
Against the Japanese yen, whose central bank held rates steady at zero, the dollar appreciated 19% from its lowest to highest levels. USD/JPY was in a very strong uptrend throughout the year, but even so, there were plenty of retraces along the way. These pullbacks were perfect opportunities for traders to combine technicals with fundamentals to enter the trade at an opportune moment.

• The interest rate differential between the Bank of Japan(BoJ) and the Federal Reserve
• Japanese government intervention to maintain their currency sends USD/JPY lower

Analysis and Recommendation:

The USD/JPY is trading at

The weight is on Asian equities today (though China is outperforming), with the region headed towards a flat to lower performance on the week. The global all-world aggregate (based on MSCI data) has fared a bit better, but could be flat as well depending on today’s Western market performance. The equity background has played against a generally better bid USD, in keeping with the typical correlation in a week where risk sentiment remained fairly repressed. Indeed, sentiment has been repressed enough to give both the USD and EUR a bid (on a trade-weighted basis) versus Asian non-Japan currencies. Yesterday we commented that despite the apparent near term re-acceleration in industrial production in Asia, global growth dynamics are still too repressed to suggest a driver for currency appreciation. Instead it is the Federal Reserve and monetary expansion that most favors support for the Asian FX space; in the near term on its own merits, Asia non-Japan will find difficulty in sustaining rallies. Indeed next week both the Federal Reserve and Bank of Japan will announce policy, and it is the latter that looks biased to continue to ease given Governor Shirakawa’s recent comments regarding “continuing powerful monetary easing”.

Yesterday’s Spanish bond auction did not bring any kind of horrible market punishing result, though auction yields were of course higher than back in January when the last 10-year sale occurred. Ultimately Spanish bonds fell post-auction, and the 10-year sold off to yield 5.925% vs. the 5.743% at the auction

The yen also continued to climb as traders sought safe havens amid worries about new deterioration in the eurozone.

The Bank of Japan may raise its consumer inflation outlook for the current and next fiscal years, though the new forecast would remain below the level the central bank has tagged as necessary to tighten its policy, according to a Nikkei report.

The number of Americans who filed requests for jobless benefits totaled 386,000 last week, keeping claims at a four-month high, the U.S. Labor Department said Thursday. Claims from two weeks ago were revised up to 388,000 from an initial reading of 380,000. Economists had projected claims would drop to a seasonally adjusted 374,000 in the week ended April 14, so the number is likely to disappoint investors. The average of new claims over the past four weeks, meanwhile, rose by 5,500 to 374,750, the highest level since late January. Continuing claims increased by 26,000 to a seasonally adjusted 3.3 million in the week ended April 7, the Labor Department said.

Sales of existing homes fell 2.6% in March, the second monthly drop though the sales pace in the first quarter was the best in five years, according to data released Thursday. The National Association of Realtors said.

A gradual improvement in U.S. economic growth is expected past the summer, the Conference Board said Thursday as it reported that its index of leading economic indicators increased 0.3% in March, led by the interest rate spread.

Rising layoffs, falling home sales and slowing manufacturing activity are sparking fears that the economic recovery is headed for a springtime stall for the third year in a row.

Monday sees March quarter producer price index data released by the ABS. Analysts are tipping the figures to show that producer prices rose by 0.5 per cent in the quarter and by 2.2 per cent over the year, suggesting that price pressures at a producer or business level are contained.

Tuesday sees long awaited consumer price index figures for the quarter. Economists are expecting the data to show the headline rate of inflation rose by 0.5 per cent, with the annual growth rate easing from 3.1 per cent to 2 per cent.

Markets are closed on Wednesday for the ANZAC Day public holiday.

On Thursday, the Department of Education and Workplace Relations will release its skilled vacancies index for March.

Friday brings March new home sales data from the Housing Industry Association.

And finally, the Bank of Japan will hold it monetary policy meeting for April, and release its outlook report.

Major Economic Events for the past week actual v. forecast

USD	Retail Sales (MoM)	0.8%	0.3%	1.0%
USD	Core Retail Sales (MoM)	0.8%	0.6%	0.9%
AUD	Monetary Policy Meeting Minutes
EUR	ECB President Draghi Speaks
CAD	Interest Rate Decision	1.00%	1.00%	1.00%
GBP	MPC Meeting Minutes
GBP	Claimant Count Change	3.6K	7.0K	4.5K
CAD	BoC Monetary Policy Report
USD	Initial Jobless Claims	386K	370K	388K
USD	Existing Home Sales	4.48M	4.62M	4.60M
GBP	Retail Sales (MoM)	1.8%	0.5%	-0.8%
GBP	Retail Sales (YoY)	3.3%	1.4%	1.0%
CAD	Core CPI (MoM)	0.3%	0.4%

Economic Highlights of the coming week that affect the Yuan, Yen, Aussie and Kiwi

AUD	CPI (QoQ)	0.6%
AUD	Trimmed Mean CPI (QoQ)	0.6%	0.6%
USD	New Home Sales	320K	313K
USD	CB Consumer Confidence	70.3	70.8
USD	Durable Goods Orders (MoM)	-1.5%	2.4%
USD	Core Durable Goods Orders (MoM)	0.5%	1.8%
USD	Interest Rate Decision
NZD	Interest Rate Decision	2.50%	2.50%
JPY	Tokyo Core CPI (YoY)	-0.4%	-0.3%
JPY	Unemployment Rate	4.5%	4.5%
JPY	Retail Sales (YoY)	9.8%	3.5%
JPY	Interest Rate Decision	0.10%

Government Bond Auctions (this week)

Apr 23-27 n/a UK Re-opened 3.75% 2052 Conventional Gilt syndication (further details tba)

Apr 23 09:30 Germany Eur 3.0bn new Apr 2013 (12M) Bubill

Apr 23 10:00 Belgium OLO Auction cancelled

Apr 23 15:30 Italy Details BTP/CCTeu on Apr 27

Apr 24 00:30 Japan Auctions 20Y JGBs

Apr 24 08:30 Holland Eur 1.5-2.5bn Jul 2014 & Jan 2037 DSL auction

Apr 24 08:30 Spain 3 & 6M T-bill auction

Apr 24 09:10 Italy Auctions CTZ/BTPei

Apr 24 14:30 UK Details Conventional Gilt auction on May 01 & I/L auction on May 03

Apr 24 17:00 US Auctions 2Y Notes

Apr 25 09:10 Sweden Auctions T-bills

Apr 25 09:30 Germany Eur 3.0bn new Jul 2044 Bund

Apr 25 14:30 Sweden Details nominal bond auction on May 02

Apr 25 17:00 US Auctions 5Y Notes

Apr 26 00:30 Japan Auctions 2Y JGBs

Apr 26 09:10 Italy BOT auction

Apr 26 14:30 Sweden Details I/L bond auction on May 03

Apr 26 17:00 US Auctions 7Y Notes

Apr 27 09:10 Italy BTP/CCTeu auction

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Originally posted here