USD/JPY" title="USD/JPY" height="242" width="474">
The USD/JPY increased by over 20% in 2013, as Abenomics kicked into full force. However, with the United States metric results awaking the bears in February, alongside indications that Abenomics is on track to achieving its inflation targets, I am looking for the USDJPY to turn south in 2014.
The USD has weakened dramatically over the past two weeks, completely missing expectations with recent economic results. Fears have been raised that the US economic recovery may not be progressing as expected, after two weak non-farm payrolls, manufacturing growth slowing and advance retail sales contracting. The United States have faced absurd weather conditions since Christmas, and this is having a negative impact on their economic performances. I am looking for the Federal Reserve to delay a taper in March, as they await guidance towards seeing if economic performances begin to improve again, weakening the USD in the process.
Investment banks such as Morgan Stanley and Goldman Sachs have already downgraded 1st quarter GDP growth forecasts, as the weather prevents economic progression. The week commencing 17th February is heavy on housing data, and I fail to envisage how building permits and housing starts would have commenced, with several states in the US under inches of snow.
Additionally, I am also looking for the JPY to strengthen between 16th – 20th February, as we expect Japan GDP and the latest BoJ (Bank of Japan) minutes. The BoJ surprisingly refrained from adding further QE to their economy last month, which was largely unexpected. It turned out that just a few days later, Japan’s Consumer Price Index release showed that inflation levels have increased by 1.3% in the past year. The BoJ have set a 2% target to hit by the end of 2014 and with inflation levels increasing, I am expecting the BoJ minutes to indicate that further QE is on hold, while inflation levels pick up. This will strengthen the JPY.
Moreover, there is a possibility that the JPY will receive a boost if Chinese metric data continues to disappoint. The JPY received support when China’s manufacturing PMIs contracted and I am eagerly awaiting the release of the Chinese New Yuan Loans. Chinese banks have been slated in the past for issuing subprime loans, which have had to be eradicated from banks’ balance sheets. If the loans release is above forecasts, it will raise more concerns that Chinese banks are still guilty of issuing subprime loans, meaning more money will be wiped away from their economy.
Regarding my technical observations for the USD/JPY, it appears that the pair is currently heading towards the 101.102 support level. If the USD continues to weaken, or the JPY receives backing, then 99.890, 99.210 and 98.170 are future support levels. According to the RSI, downward movement is in the works.