Japanese Yen: Next Week's Currency Loser

Includes: FXY, UDN, UUP
by: FXstreet

By Richard C. Lee

Although there are early indications that the Japanese yen may gain this week, there is ample fundamental data that is expected to bolster the Asian currency lower against the U.S. dollar - towards 84.00. The notion could work well when additionally taking into consideration near term technical support.

Dollar side data is anticipated to bolster further momentum in the greenback, particularly against the yen the current week. U.S. housing sector data is expected to show further signs of stabilization - building on notions of a U.S. recovery. In addition, durable orders declines in October are anticipated to remain subdued, even though following on the heels of an almost 10% surge in September.

But, more importantly Japanese yen bears will be eyeing U.S. growth. U.S. gross domestic product is expected to be revised higher in the second preliminary reading - upwards of 2.8% annually. This isn't that far from the reality, when considering what has been surfacing in the way of economic data. Retail sales figures have remained positive for three of the last four months. And, manufacturing sector activity has rebounded, jumping into expansionary territory for the two of the last three months.

As a result, with U.S. figures still bullish, it's easy to see the dollar winning for a second straight week against the yen.

By comparison, Japanese data is limited to consumer price data and household spending figures. Both are expected to show slumping consumption and continued deflation in the world's third largest economy.

The fundamental picture works well when taking into consideration near term technical support that is likely to dampen any real correction in the USDJPY pair. Initial support at 81.25 is being reinforced by 80.70 38.2% fib support in the daily charts. As a result, both figures are likely to keep USDJPY bears at bay - with confirmation coming from technical oscillators.

So, although a correction in USDJPY may be brewing, the effects will likely be minimal as there remains plenty of reason to be short Japanese yen heading into the Parliamentary elections in December.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.