Forex Market: USD/JPY trading forecast for Monday

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Friday’s trade saw USD/JPY within the range of 118.80-119.64. The pair closed at 119.50, gaining 0.56% on a daily basis and 0.59% for the whole week.

euro vs dollar


United States

Existing Home Sales

The index of existing home sales in the United States probably gained 0.8% to a level of 5.25 million in November compared to a month ago. In October compared to September existing home sales rose 1.5% to 5.26 million, or the highest level since September 2013. The sample of data encompasses condos, co-ops and single-family houses.

Statistical data on existing home sales is often used along with statistical figures regarding thenew home sales and pending home sales, with the major objective being to draw a conclusion how nation’s housing sector is performing, regardless of interest rates. The most active house-purchasing period in the United States is usually between the months of March through June. Therefore, in case statistical data revealed a sudden drop in the number of homes sold rather than an improvement during this period, this would be considered as a signal of weakness in the country’s housing market.

The report on existing home sales usually does not cause a real direct impact on US economy. Actually, this effect appears to be minimal, due to the fact that nothing is produced with the mere sale of an existing home. In terms of economic activity, the sale of an existing house may be related only to interior design and purchases of new furniture.

The reason markets pay a certain attention to existing home sales report is that it reveals much about the general course of nation’s economy. A major part of the population considers a house as a sign of wealth and, unlike the money wealth, which is concentrated in certain regions of the country and held by the wealthiest representatives of the population, ”housing wealth” is evenly distributed across the country.

In case the index increased more than anticipated, this would have a bullish effect on the US dollar. The National Association of Realtors (NAR) is to release the official figure at 15:00 GMT on Monday.

Fed monetary policy statement

Demand for higher-yielding assets was boosted on Thursday and Friday, as in its policy statement, released Wednesday, the Federal Reserve Bank replaced the pledge to maintain the target lending rate close to zero for a considerable period of time with a promise not to rush to normalize its monetary policy stance.

According to the Fed’s statement: ”Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated.”


Monetary stimulus

The Bank of Japan is to expand its monetary base at an annual rate of JPY 80 trillion, according to its policy statement, released on Friday. Japanese economy is expected to continue recovering at a moderate pace, as the effects of the latest increase in the sales tax dissipate.

”If you look at the scale of BOJ easing against a normalization of Federal Reserve policy and a rate-hiking cycle, it stands to reason that dollar-yen should trade at significantly higher levels,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London, cited by Bloomberg. ”I won’t be surprised to see us trading toward 125-127 over the course of the first six months of next year.”

”A central bank that seems very willing to turn a blind eye to the potential negative implications of a rapid depreciation in the yen, that to me is a recipe for 130” per dollar during the second six months of 2015, said Robert Rennie, head of currency and commodity strategy at Westpac Banking Corp. in Sydney, cited by the same media. ”Financial markets are trying to sound the all clear,” diminishing demand for the Japanese currency as a safe haven.

The yield on Japan’s two-year bonds plunged to -0.04% on Friday, while the yield on nation’s five-year bonds dropped to the record low 0.03%.

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 119.31. In case USD/JPY manages to breach the first resistance level at 119.83, it will probably continue up to test 120.15. In case the second key resistance is broken, the pair will probably attempt to advance to 120.67.

If USD/JPY manages to breach the first key support at 118.99, it will probably continue to slide and test 118.47. With this second key support broken, the movement to the downside will probably continue to 118.15.

The mid-Pivot levels for Monday are as follows: M1 – 118.31, M2 – 118.73, M3 – 119.15, M4 – 119.57, M5 – 119.99, M6 – 120.41.

In weekly terms, the central pivot point is at 118.23. The three key resistance levels are as follows: R1 – 120.91, R2 – 122.31, R3 – 124.99. The three key support levels are: S1 – 116.83, S2 – 114.15, S3 – 112.75.

Gary Beal