Date: 12 Nov 2018

The Japanese yen (JPY) began November on the wrong foot as a result of recent efforts by US and China to begin a trade dialogue, a dovish Bank of Japan, and lack of surprise in midterm elections have taken the sparkle off the safe-haven that is the Japanese currency. The yen could deal with additional selling pressure this week if the gross domestic product (GDP) figures, due Tuesday, demonstrate a negative print. A worse reading would further push back the expected scheduling of the Bank of Japan (BoJ) exit from its massive stimulus program, as well as add to the deteriorating outlook for world growth in 2019.

The Japanese economy advanced 0.7% quarter-on-quarter in the June quarter, compared to the -0.2% contraction registered in the previous period and stronger than analysts’ forecast of 0.5% growth, boosted by an upward revision of business spending and a strong rebound in private consumption.

On the US side, the preliminary Michigan’s consumer sentiment index fell to 98.3 in November, comparing to 98.6 registered in October but slightly above analysts’ consensus of 98. It is the lowest reading in three months, driven by a drop in consumer expectations. Data collected was until Wednesday night so there was only a one-day overlap after the mid-term election.  A high reading anticipates positive for the USD, while a low reading is seen as negative.

Since the beginning of the year 2018 until last Friday close, the USDJPY remains positive with a gain of over 1.0% and after the beginning of November, it managed to rally almost 0.8%. Nonetheless, ended the past week with a firmer tone gaining more than 0.5% although, on the daily time-frame, the currency pair closed in the red with a minor loss of 0.23%. Furthermore, the USDJPY is in a bullish phase since late October.

On yesterday session, the currency pair did not have the strength to continue the upward movement and fell with a narrow range, closing in the middle of the daily range, in addition, managed to close within Thursday range, which suggests being clearly neutral, neither side is showing control.

The stochastic is showing an extremely overbought market and is displaying a lack of momentum.

In early October, the currency pair made a new year-to-date high at 114.548 slightly above a daily resistance but found enough selling pressure to kick-start a downward correction that ended with a double bottom near the 111.618. November began on the right foot but since then the currency pair has been in an upward movement that seems to have stalled at a daily resistance zone near 113.957. Fridays’ price action shows signs of profit taking although this can trigger a downward move to a key level at 113.176. However, if it the USDJPY holds above the 113.520 price level we might see another push upward and even a new year-to-date high.

 

Watch out this Week:

On Tuesday, November 13 at 23:50 GMT (18:50 PM ET) the Cabinet Office is scheduled to release the preliminary Japanese gross domestic product (GDP) quarter-on-quarter for the third quarter which is expected to contract -0.3%. A high reading or a better than expected number is grasped as positive for the JPY, while a low reading is negative.

On Wednesday, November 14 at 13:30 GMT (08:30 PM ET) US Bureau of Labor Statistics, will release the US consumer price index (CPI) year-on-year in October which is expected an increase to 2.5%. The CPI is a key indicator to measure inflation and changes in purchasing trends. A high reading is seen as positive for the USD, while a low reading is seen as negative.

On Thursday, November 15 at 13:30 GMT (08:30 PM ET) the US Census Bureau is scheduled to release the US retail sales month-on-month in October which is expected to rise to 0.5% comparing to the previous 0.1%. A high reading is seen as positive for the USD, while a low reading is perceived as negative.

 

USD/JPY Daily Candlestick Chart

USD/JPY Daily Candlestick Chart

 

Written by Hugo O’Neill, External Analyst

 

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