The interest rate outlook could push USDJPY up to December 2002 levels

[walid]

As expected, the Japanese retail trade of April came to show the first yearly rising, after 3 months of slide by the strongest rising pace since March 2014 to reflect the negative impact of the sales taxes hiking by 3% in the beginning of April 2014 on the consuming performance in Japan.
April Japanese retail trade could rise yearly by 5%, while the market was waiting for increasing by 5.4%, after collapse by 9.7% in March.
After the release of this figure, USDJPY could reach 124.30 which has not been seen since December 2002 by surpassing Jun. 22. 2007 peak at 124.12.
While the markets are ahead of receiving important inflation data from Japan by the beginning of tomorrow Japanese session, as the impact of raising the sales levy by 3% in the beginning of last financial year will be diminishing with the release of April National CPI of Japan which is expected to show rising by only 0.2% y/y, after increasing in March by 2.2%
BOJ has said previously that the impact of the sales taxes rising by 3% to 8% in the beginning of April 2014 could add to its inflation scale 1.7% y/y and also could drive May 2014 annual inflation pace up by 2%.
While April Tokyo CPI ex fresh foods which can be a leading indicator of Japan figure of April has shown previously rising by 0.4% year on year, after soaring by 2.2% in March.
BOJ has put down its previous plan for reaching 2% yearly inflation target this financial year to be around the first half of 2016.
Kuroda did not rule out adding more easing steps later, if needed after the recent BOJ meeting on last Apr. 30 when it kept its monetary base annual expansion by ¥80tr yearly as it has been since last Oct. 31 maintaining the interest rate at 0.1% as it has been since December 2008.
So, The interest rate outlook differential could easily take its toll on USDJPY this week, after the Fed's Chief Janet Yellen said by the end of last week that she is still expecting raising of the federal fund rate this year, after keeping it between zero and 0.25% since December 2008.
But she has said also in the same time that's in need of continued improving of the labor market and proofs of inflation building up to reach the Fed's 2% yearly inflation target to only downplay the anticipation of watching close by hiking in June for the first time since 2006.
US PCE which is the Fed's favorite gauge of inflation is expected to show the figure of April in the beginning of last week, after rising in March and February by 0.3% y/y following increasing in January by only 0.2% to be the weakest pace of rising since October 2009.
While April US CPI came by the end of last week showing falling by 0.2% y/y, after decreasing by 0.1% in March which is the weakest since also October 2009 to reflect the current relatively weakened energy prices and also the greenback appreciation, before forming peaks versus its rival major currencies on last Apr. 13.
This tame inflation pressure surely gives the Fed leeway to hold, before hiking and also the worrying GDP figure of US in the first quarter which came just before the recent FOMC meeting can also make the Fed in no rush to hike.
God willing, the market eyes will be focusing on the release of US Q1 GDP first revision which is expected to come with annual contraction by 0.8%, after the preliminary reading of it had shown barely annualized growth by 0.2%, while the consensus was referring to growth by 1.1%, after expansion by 2.2% in the fourth quarter of last year.
USDJPY could gain momentum this week by dropping 122.03 which capped it on last Mar. 10 to reach today 124.3 which is now the highest reached level since the falling to 75.57 on Oct. 31.2011.
USDJPY could end consolidation nearly around 120 psychological level continued since the end of last year, after relatively lower volatility in April and March of this year.
USDJPY sellers' hopes currently can be limited over the short term by making pull back to 122.03 to be confirmed as a new supporting level with the current overbought stance which can be in need for fixing.
While the buyers can look for further extension for reaching new highs boosted by 122.03 breaking out.
After residing for trading near 123.70 currently, USDJPY is now trading below its hourly 20-SMA but above its hourly 50-SMA, its hourly 100-SMA and also its hourly 200-SMA and over the daily charts, the pair is surely well above its 20-SMA, daily 50-SMA, its 100-SMA and also its 200-SMA.
The pair daily RSI-14 is now in the overbought area above 70 reading now 76.993 and also its daily Stochastic Oscillator (5, 3, 3) which is higher sensitive to the volatility is having now its main line in the overbought region above 80 reading 87.385 and also its signal line which is now reading 90.080.
God willing, the pair rising higher from here is in need for surpassing 124.30 first, before facing 125 psychological level, while the falling can be met supporting levels now at 122.77, 120.64, before 120 psychological level which can be followed by 118.88 whereas the pair formed a higher low on this May. 14 above 118.48 which could support the pair on last Apr. 30 and it can be followed by facing key supporting level at 118.23 which could withstand to drive the pair up from 118.32 on Mar. 26.

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FX Market Strategist
Walid Salah El Din
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