Forex Market: USD/JPY daily trading forecast

Friday’s trade saw USD/JPY within the range of 118.03-119.22. The pair closed at 118.80, gaining 0.11% on a daily basis.

At 7:52 GMT today USD/JPY was down 0.35% for the day to trade at 118.37. The pair broke the first key support level and touched a daily low at 117.78 during early Asian trade.

Fundamentals

United States

New York Empire States Manufacturing data

The New York Empire State Manufacturing Index probably improved to a reading of 12.00 in December, according to the median forecast by experts, from 10.16 in the prior month. If so, this would be the highest index reading since September, when the indicator was reported at 27.54.

The index is based on the monthly Empire State Manufacturing Survey, which is conducted by the Federal Reserve Bank of New York. About 200 top manufacturing executives respond to a questionnaire, sent out during the first day of the month. They provide their estimates in regard to the performance of several business indicators from the prior month, while also forecasting performance during the upcoming six months.

The ”general business conditions” component of the index is based on a distinct question, posed on the Empire State Manufacturing Survey, which means it is not a weighted average of the other indicators. These indicators, which are only applicable to the manufacturing facilities of survey respondents in the region of New York, include new orders, shipments, unfilled orders, delivery time, inventories, prices paid, prices received, number of employees including contract workers, average employee work week, technology spending and capital expenditures.

The general business conditions component and the sub-indexes for the 11 indicators are calculated by subtracting the percentage of respondents, rating an indicator as ”lower” (a drop), from the percentage of respondents, rating the same indicator as ”higher” (an increase). In case 33% of survey respondents stated that business conditions had improved during the current month, 50% stated that conditions had not changed, and 17% of the respondents stated that conditions had deteriorated, the index would have a reading of 16. Readings above 0.00 are indicative of improving business conditions in the region. Higher-than-anticipated index value would certainly boost demand for the US dollar. The Federal Reserve Bank of New York is expected to release the official reading at 13:30 GMT on Monday.

Industrial output, Capacity Utilization Rate

Industrial output in the United States probably expanded 0.6% in November compared to October, following a 0.1% contraction in October compared to September. Manufacturing production expanded 0.2% in October, as the production of non-durable goods increased 0.3%, while the production of durable goods edged up 0.1%. Mining output declined 0.9%, while utilities output shrank 0.7% during the same month.

The index of industrial production reflects the change in overall inflation-adjusted value of output in the three major sectors mentioned above. The index is sensitive to consumer demand and interest rates. As such, industrial production is an important tool for future GDP and economic performance forecasts. Those figures are also used to measure inflation by central banks as very high levels of industrial production may lead to uncontrolled levels of consumption and rapid inflation. It is a coincident indicator, which means that changes in its levels generally echo similar shifts in overall economic activity. A larger-than-projected increase in the index would usually boost demand for the US dollar.

The Board of Governors of the Federal Reserve is to release the production data at 14:15 GMT.

In addition, Capacity Utilization Rate in the country probably rose to 79.3% in November from 78.9 in October. If so, this would be the highest utilization rate since March. This indicator represents the optimal rate for a stable production process, or the highest possible level of production in an enterprise, in case it operates within a realistic work schedule and has sufficient raw materials and inventories at its disposal. High rates of capacity utilization usually lead to inflationary pressure. In general, higher-than-anticipated rates tend to be dollar positive.

NAHB Housing Market Index

The National Association of Home Builders (NAHB) Housing Market Index probably slipped to a reading of 57.0 in December, according to expectations, from 58.0 in November. The latter has been the highest index reading since September, when the indicator stood at 59.0. It is based on a monthly survey in regard to current home sales and expected sales in the coming six months. Values above the key level of 50.0 indicate that housing market conditions are good. Therefore, higher-than-projected readings would provide support to the greenback. The official data is scheduled for release at 15:00 GMT.

Japan

Elections and yens reaction

Japans yen gained ground against the greenback on speculation market players were taking profits, following Prime Minister Shinzo Abes victory in elections.

“The market’s short-term reaction may well be to ‘sell the fact’,” as the result is as opinion polls predicted, said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo, by phone last night, cited by Bloomberg. “Still, in the medium to long term, there is no change in the trend for a weaker yen as Abenomics has won another four years for structural reforms and monetary and fiscal stimulus.”

Shinzo Abe’s ruling Liberal Democratic Party and its coalition partner won over two-thirds of the 475 seats in the lower house at Sundays elections, securing about 325.

The yen has depreciated almost 30% during the last two years as Japans PM implemented fiscal spending and structural reforms, while the Bank of Japan introduced unprecedented monetary stimulus in order to cope with deflationary processes.

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 118.68. In case USD/JPY manages to breach the first resistance level at 119.34, it will probably continue up to test 119.87. In case the second key resistance is broken, the pair will probably attempt to advance to 120.53.

If USD/JPY manages to breach the first key support at 118.15, it will probably continue to slide and test 117.49. With this second key support broken, the movement to the downside will probably continue to 116.96.

The mid-Pivot levels for Monday are as follows: M1 – 117.23, M2 – 117.82, M3 – 118.42, M4 – 119.01, M5 – 119.61, M6 – 120.20.

In weekly terms, the central pivot point is at 119.37. The three key resistance levels are as follows: R1 – 121.30, R2 – 123.81, R3 – 125.74. The three key support levels are: S1 – 116.86, S2 – 114.93, S3 – 112.42.