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Forex - USD/JPY weekly outlook: December 31 - January 4

Published 12/30/2012, 06:22 AM
Updated 12/30/2012, 06:22 AM
Investing.com - The U.S. dollar held near the highest level since August 2010 against the yen on Friday, as weaker-than-expected Japanese economic data fanned speculation the Bank of Japan will introduce further stimulus measures to boost economy activity and combat deflation.

USD/JPY hit 86.63 on Friday, the pair’s highest since August 3, 2010; the pair subsequently consolidated at 85.88 by close of trade, 1.93% higher for the week.

The pair is likely to find support at 85.21, Wednesday’s low and resistance at 86.63, Friday’s high and a 28-month high.

Official data released Friday showed that Japan’s industrial output fell by 1.7% in November, worse-than-expectations for a 0.5% decline.

A separate report showed that consumer prices fell 0.1% in November from a year earlier.

The yen has come under heavy selling pressure in recent weeks on expectations that newly elected Japanese Prime Minister Shinzo Abe will push for more monetary easing by the Bank of Japan.

On Thursday, new Finance Minister Taro Aso said that Abe has ordered him to compile a stimulus package without adhering to a previously agreed cap on new bond issuance.
 
Abe has recently called for unlimited easing in order to weaken the local currency and spur growth in the recession-hit economy.

Meanwhile, market players continued to monitor developments surrounding the fiscal cliff in the U.S., approximately USD600 billion in automatic tax hikes and spending cuts due to come into effect on January 1 unless Democrats and Republicans agree how to cut the deficit.

U.S. President Barack Obama met with congressional leaders at the White House Friday afternoon, but both sides failed to reach an agreement ahead of the looming year-end deadline.

The gathering included House Speaker John Boehner and Senate Minority Leader Mitch McConnell, both Republicans, as well as Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, both Democrats.

The House of Representatives is due to return to Washington on Sunday. The Senate will be in Sunday as well to try to reach a last-ditch agreement.

Without a deal, the U.S. could fall back into recession and drag much of the world down with it.

On the data front, the National Association of Realtors said Friday that U.S. pending home sales rose 1.7% in November, above expectations for a 1% increase.

A separate report showed that Chicago's purchasing managers' index rose to 51.6 in December, from a reading of 50.4 the previous month, beating expectations for a rise to 51.0.

In the week ahead trading volumes are expected to remain light because many traders have closed books to lock in profit before the end of the year, reducing liquidity in the market and increasing the volatility.

Meanwhile, U.S. is to publish its closely-watched monthly jobs report on Friday, as investors attempt to gauge the strength of the country’s economic recovery.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, December 31

Markets in Japan will remain closed for New Year’s Eve.   

Tuesday, January 1

Markets in the U.S. and Japan will remain shut in observance of New Year’s Day.

Wednesday, January 2

Markets in Japan will remain closed for a bank holiday.

Meanwhile, the Institute of Supply Management is to produce a report on manufacturing growth in the U.S., a leading indicator of economic health.

Thursday, January 3

Markets in Japan will remain closed for a bank holiday.

Later Thursday, the U.S. is to release a report on ADP nonfarm payrolls, as well as its weekly government report on initial jobless claims. In addition, the Federal Reserve is to publish the minutes of its most recent policy-setting meeting.

Friday, January 4

The U.S. is to round up the week with official data on nonfarm payrolls, the foremost gauge of job creation, as well as data on the overall unemployment rate.

The country is also to release official data on factory orders, crude oil stockpiles and natural gas inventories. In addition, the ISM is to produce a report on service sector activity.

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