USD/JPY Weekly Fundamental Analysis March 5-9, 2012, Forecast

By FX Empire.com

Rule: 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 last week tumbled to an almost nine-month low against the dollar after the Bank of Japan on Feb. 14 unexpectedly added ?10 trillion to an asset-purchase program and set an inflation goal of 1 percent. The yen is trading at this writing at 81.80 and should hold here until release of US data mid week

Last week, USD/JPY extended the impressive post BOJ rally. The move was clearly in the first place due to yen weakness, rather than dollar strength. The trade-weighted dollar even lost some ground on a weekly basis. The USD/JPY got also no support from rising core bond yields last week. A reasonably positive sentiment on risk reinforced the rally. USD/JPY reached a new recovery high at 81.67 on Monday morning February 27. In this respect, the augmentation of the amount of BOJ asset purchases and especially the installation of a 1% inflation target proved to be a more efficient weapon than interventions on the currency market. Of course at some point, the current rally will have incorporated that new policy approach of the BOJ. On February 01, USD/JPY was still near to 76.00 area. Given the limited price swings that we had become used to in this cross rate of late, the gains of the previous four weeks are impressive. So, there might be room for a correction. After the policy change of the BOJ, we also look out which currency will has become the preferred safe haven in case of a deterioration in sentiment on risk. The jury is still out but with market probably long USD/JPY after the recent change in the approach of the BOJ, we wouldn’t be surprised if the first correction would be rather violent, too. That said, the BOJ applying an inflation target is a potential game changer. So, we maintain a USD/JPY positive bias longer term. At some point, the pair might also still get support from a further improvement of US eco data and higher US bond yields. We maintain a buy on-tips strategy as long as the pair is holding above the 78.29 range top. On the top side 82.23 (19May high), is the next high profile target on the charts.

Only Good News from the US:

Existing home sales US existing home sales picked up unexpectedly in January, but the previous figures were downwardly revised.

Initial jobless claims US initial jobless claims stayed unchanged in the week ending February the 18th, while the consensus was looking for an increase.

University of Michigan consumer confidence The final figure of Michigan consumer confidence for February showed a strong upward, revision from 72.5 to 75.3, while only a minor one was expected.

New home sales After increasing for four consecutive months, US new home sales dropped at the start of 2012.

Federal Reserve Chairman Bernanke testified before the Senate, this week, the markets found his comments a bit dovish and drew conclusions that any additional QA was off the table for the time being. Although the Chairman warned that the economy was recovering, he stated it was fragile and he was still worried about jobs. Gold soared on his comments.

News from the Eurozone

This week starts off with an agreement on the Greek bailout and approval from the EU, ECB and IMF. Greece passes a major hurdle and now needs to complete their agreement with the IIF.

There are worries about the CDS swaps triggering a credit event, at first, the initial ruling ruled that there would be no credit event, but it turns out that ruling was on a very small question concerning the ECB, it seems now that now that Greece has passed the new laws so they can force bondholders to accept the agreement, it will now trigger a credit event and CDS insurance will have to payout.

The ECB, liquidity operation, although successful, loans funds to over 800 banks, in excess of 500 billion euros. Markets are now worried about the consequences.

Spain reported that they will miss their budget deficit target this year, but still remain on track for 2013.

The EU approved the next tranche for Portugal.

The G20 meeting in Mexico ended without any results with non euro nations saying that the eurozone needs to pick up their game and show their money before any others would consider participating.

The EU Summit this past week went off quietly without much in the way of announcements.

Consumer confidence European Commission’s consumer confidence improved for a second straight month in February. Consumer confidence rose from -20.7 to -20.2, marginally weaker than expected (-20.1).

Industrial new orders Euro zone industrial new orders rebounded by 1.9% M/M in December, while only a moderate pick up was expected.

IFO business climate indicator The German IFO index rose for a fourth consecutive month in February. The indicator jumped from 108.3 to 109.6, while a more moderate increase was expected.

Manufacturing PMI Euro zone manufacturing PMI extended its rebound in February, rising for a third consecutive month, but at a slower pace. Services PMI After three consecutive increases, euro zone services PMI fell back in February, from 50.4 to 49.4, while a slight increase was expected.

In January, the euro zone unemployment rate rose unexpectedly. The unemployment rate jumped from an upwardly revised 10.6% (earlier reported as 10.4%) to 10.7%, while the consensus was looking for stabilization at 10.4%. Eurostat estimates that the number of people unemployed rose by 185 000 in the euro area in January, to a total level of 16.925 million. The highest unemployment rates were observed in the Spain (23.3%), Greece (19.9% in November), Ireland and Portugal (both 14.8%). The youth unemployment rate (under 25) was 21.6% in the euro zone. The euro zone unemployment rate is now at the highest level since October 1997 and is just 0.2% below its all time high, suggesting that a jump above the all-time highs is not excluded in the coming months.

News from the Far East

In Australia Prime Minister Gillard won her battle against ex Prime Minister Rudd, who is now retiring from public life.

China’s official purchasing managers’ index (PMI) rose to 51.0 from 50.5 in January.

China also signaled this week that they are considering offering assistance to the EU and the EFSF.

Japan’s unemployment rate inched up to 4.6 per cent in January from a revised 4.5 per cent in the previous month, the government said on Friday. The figure was roughly in line with economists’ forecasts.

The ministry also said January household spending fell by an inflation-adjusted 2.3 per cent year-on-year. The fall was bigger than a 0.8 per cent drop economists had expected.

Japan refrained from selling yen in the foreign-exchange market last month, according to the Finance Ministry.The nation didn’t sell any of its currency from Jan. 30 to Feb. 27, the ministry’s month-end data posted on its website shows.

Economic Events: (GMT)

Mar. 05	00:30	AUD	Company Gross Operating Profits
15:00	USD	ISM Non-Manufacturing Index
Mar. 06	00:30	AUD	Current Account
03:30	AUD	Interest Rate Decision
03:30	AUD	RBA Rate Statement
Mar. 07	00:30	AUD	GDP (QoQ)
13:15	USD	ADP Nonfarm Employment Change
13:30	USD	Nonfarm Productivity (QoQ)
13:30	USD	Unit Labor Costs (QoQ)
20:00	NZD	Interest Rate Decision
20:00	NZD	RBNZ Rate Statement
20:00	NZD	RBNZ Monetary Policy Statement
23:50	JPY	GDP (QoQ)
23:50	JPY	GDP Price Index (YoY)
Mar. 08	00:30	AUD	Employment Change
00:30	AUD	NAB Business Confidence
00:30	AUD	Unemployment Rate
Tentative	CNY	Chinese Trade Balance
13:30	USD	Initial Jobless Claims
13:30	USD	Continuing Jobless Claims
19:00	USD	Federal Budget Balance
Mar. 09	00:30	AUD	Trade Balance
02:00	CNY	Chinese CPI (YoY)
02:00	CNY	Chinese Fixed Asset Investment (YoY)
02:00	CNY	Chinese Industrial Production (YoY)
02:00	CNY	Chinese PPI (YoY)
02:00	CNY	Chinese Retail Sales (YoY)
13:30	USD	Average Hourly Earnings (MoM)
13:30	USD	Nonfarm Payrolls
13:30	USD	Trade Balance
13:30	USD	Unemployment Rate
13:30	USD	NY Empire State Manufacturing Index
13:30	USD	Private Nonfarm Payrolls

1^st of the month global economic data releases actual v. forecast

AUD	Building Approvals (MoM)	0.9%	2.1%	-1.0%
AUD	Private New Capital Expenditure (QoQ)	-0.3%	3.9%	14.6%
INR	Indian Trade Balance	-14.8B	-11.0B	-12.7B
CHF	GDP (QoQ)	0.1%	-0.1%	0.3%
GBP	Nationwide HPI (MoM)	0.6%	0.3%	-0.3%
CHF	SVME PMI	49.0	48.5	47.3
EUR	French Manufacturing PMI	50.0	50.2	50.2
EUR	German Manufacturing PMI	50.2	50.1	50.1
EUR	Manufacturing PMI	49.0	49.0	49.0
PLN	Polish GDP (YoY)	4.3%	4.2%	4.2%
GBP	Manufacturing PMI	51.2	52.0	52.0
EUR	CPI (YoY)	2.7%	2.6%	2.6%
EUR	Unemployment Rate	10.7%	10.4%	10.6%
USD	Core PCE Price Index (MoM)	0.2%	0.2%	0.1%
CAD	Current Account	-10.3B	-9.6B	-12.3B
USD	Personal Spending (MoM)	0.2%	0.4%	0.0%
USD	Initial Jobless Claims	351K	353K	353K
USD	Continuing Jobless Claims	3402K	3400K	3404K
USD	ISM Manufacturing Index	52.4	54.6	54.1
USD	Fed Chairman Bernanke Testifies
KRW	South Korean CPI (YoY)	3.1%	3.5%	3.4%
JPY	Unemployment Rate	4.6%	4.5%	4.6%
JPY	Tokyo Core CPI (YoY)	-0.3%	-0.4%	-0.4%

Government Bond Auction Schedule

Mar 05 10:10 Norway Bond auction

Mar 06 10:10 Greece Auctions 6M T-bills

Mar 06 10:15 Austria Bond auction

Mar 06 10.30 UK Auctions 0.75% 2034 I/L Gilt

Mar 06 15:30 UK Details gilt auction on Mar 15

Mar 07 10:10 Sweden Nominal bond auction

Mar 07 10:30 Germany Eur 4.0bn Feb 2017 Bobl

Mar 07 10.30 UK Auctions new Sep 2017 conventional Gilt

Mar 08 16:00 US

Announces auctions of 3Y Notes on Mar 12, 10Y Notes on Mar

13 & 30Y Bonds on Mar 14

Originally posted here