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Forex - USD/JPY weekly outlook: August 15 - 19

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Forexpros - Last week saw the U.S. dollar decline against the yen, hovering close to the pair's all-time low as Standard & Poor's downgrade of the U.S. credit rating and mounting fears over sovereign debt contagion in the euro zone drove investors to the safe haven yen.

USD/JPY hit 76.29 on Thursday, the lowest since August 1; the pair subsequently consolidated at 76.72 by close of trade on Friday, dropping 1.6% over the week.

The pair is likely to find short-term support at 76.28, the low of August 1 and a four-month low and resistance at 77.85, the high of August 9.

On Monday, market sentiment was rattled after ratings agency Standard and Poor's downgraded the U.S. sovereign debt rating by one notch to AA+ from AAA after markets closed last Friday.

The ratings agency kept the rating outlook at negative, suggesting a further downgrade could be possible within the next 12 to 18 months.

The downgrade prompted investors to shun riskier assets, such as stocks and higher yielding currencies, and flock to traditional safe haven assets like the yen, Swiss franc and gold.

The yen strengthened broadly on Tuesday, climbing above the level that prompted Japanese officials to intervene in the currency market on August 4, after the Federal Reserve pledged to keep its benchmark interest rate at ultra-low levels until "at least mid-2013."

The Fed also indicated that it "discussed the range of policy tools available to promote a strong economic outlook recovery in a context of price stability" and said it was prepared to employ the tools "as appropriate".

Meanwhile, fears grew that the euro zone's debt crisis could spill over to the region's banking sector, as speculation over a French sovereign debt downgrade raised concerns over the health of major French lenders, particularly Societe Generale.

The sharp gains in the yen prompted Japanese Finance Minister Yoshihiko Noda to sharpen his verbal warnings to markets on Thursday, saying "We are keeping an extremely close watch on currency moves, while working closely with the global community."

Noda added that he was in contact with leaders from the Group of Seven nations about foreign exchange rates, a possible sign that Tokyo was considering further measures to curb gains in the yen.

On Friday, Noda reiterated his comments, warning that he would continue to closely watch the markets and take bold action "if it becomes necessary."

Meanwhile, government data showed that U.S. retail sales rose 0.5% in July, the biggest gain in four months.

However, concerns over the U.S. economic outlook remained after the University of Michigan's preliminary index of consumer sentiment plunged to a three-decade low in August.

Looking ahead to the coming week, U.S. data on consumer price inflation will be a major focus of attention, while preliminary data on Japan's second quarter gross domestic product will also be in focus.

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

Monday, August 15

Japan is to publish preliminary data on gross domestic product, the broadest measure of economic activity and the primary gauge of the economy's health.

Later in the day, the U.S. is to produce official data on manufacturing activity in New York State and a report on the balance of domestic and foreign investment in the U.S.

Tuesday, August 16

The U.S. is to publish official data on building permits, an excellent gage of future construction activity, as well as data on housing starts. The U.S. is also to release data on import prices, the capacity utilization rate and industrial production, a leading indicator of economic health.

Wednesday, August 17

The U.S. is to publish official data on producer price inflation, a leading indicator of consumer inflation, as well as government data on crude oil stockpiles.

Thursday, August 18

Japan is to publish official data on its trade balance, the difference in value between imported and exported goods and service over the month.

Meanwhile, the U.S. is to publish a flurry of economic data with government reports on initial jobless claims, consumer price inflation, existing home sales, manufacturing activity in Philadelphia as well as a report on natural gas stockpiles.

Friday, August 19

Japan is to round up the week with a report on total industry activity, a leading indicator of economic health.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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