The USDJPY will be considered by many as the surprise mover last week. The USD recorded ten days of successive gains against the JPY, surpassing the nine days of consecutive gains last seen in March 2005.
The major economic news headlines that contributed to this advancement, included the United States 2Q GDP estimate surpassing all expectations, alongside US Initial Jobless Claims dropping to an 8-year low in July. Unfortunately, the news that the US added a slightly lower 209.000 jobs in July (or more likely the US unemployment rate rising to 6.2%) correlated in this pair failing to surpass what has become a psychological 103 resistance level. Investors decided to take profit on the pair as the weeks trading concluded.
It appears that we are seeing the detrimental impact an April sales tax is having on Japan’s economy. The latest Japanese Household Spending figures contracted by an annualised 3%, which was followed by a 1.8% contraction in Large Retail Sales and then a 3.3% monthly contraction in Industrial Output. A continuation of declining Japanese economic figures will seemingly reopen the debate regarding whether the BoJ needs to add further stimulus measures to the Japanese economy. In the meantime, this development is certainly something for traders to keep an eye out for.
Looking ahead to the upcoming week, there is a lower quantity of economic releases from both the Japanese and United States economy. On Tuesday, Japan’s Markit Services PMI and the latest United States ISM Non-Manufacturing Composite are both released.
In regards to the technicals on the Daily timeframe, the pair has now extended away from a bearish trendline that has controlled the overall USDJPY direction since January. A newer formed bullish trendline has now emerged. As long as confidence in the US economy remains consistent and we continue to see declines in Japanese consumer expenditure, this trendline could be set to control the direction of the pair moving forward.
Both the Stochastic Oscillator and RSI are suggesting a pullback is in play, after the pair approached the oversold boundaries. After recording such a lengthy run of consecutive gains, it would not surprise if this pair indeed pulls back slightly. Possible support levels can be found at 102.270 and 102.005, whereas resistance can be located at 102.798 and 103.093. In order to be confident that the USDJPY is set for a bullish rally, we need an upside beyond the latter resistance level. This would represent the highest USDJPY valuation since the 4th April.