The week ahead is expected to be quiet as the holiday season kicks in. This marks periods of low volatility and liquidity leading to erratic price movements in the currency pairs. Therefore, it is best to stay on the sidelines until the liquidity picks up. The economic calendar for the week ahead will see mostly second tier data coming out. This could potentially be the catalyst for erratic price action. The week starts off with the Bank of Japan’s core inflation data coming out on Wednesday. The BoJ’s core CPI is forecast to rise 0.6% marking the same pace of increase as the month before.
The BoJ Governor Kuroda is also due to speak later on Thursday which could keep the yen a bit volatile. Retail sales and preliminary industrial production figures mark the economic data from Japan for the rest of the week. The euro markets are closed on Monday and Tuesday. Economic data over the week will see the preliminary inflation data from Germany. Economists polled forecast that German inflation increased 0.3% during December. However, given the recent drop in fuel prices there is a big chance that inflation could miss estimates. Data from the U.S. is relatively quiet with only second tier information such as the Chicago PMI and the Conference Board’s consumer confidence index report coming out over the week.
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Chart set up: The USDJPY saw a volatile week as price action broke past multiple levels of support after hitting the resistance area near 113.65. The sharp decline saw only a few pull backs and the declines came out strongly. Breaking past the lower support level at 111.78, the USDJPY is likely to signal further declines in the coming weeks.
Key support/resistance levels:
Support: 110.50; Resistance: 111.78
The strong declines in the USDJPY have pushed around the support and resistance levels. The area of 111.78 which previously served as support was breached. This indicates that the USDJPY could potentially test this level in the short term to establish resistance. Forming resistance at 111.78 could indicate further declines. The next downside target in USDJPY is seen at 110.50. This is a long term support level that has held up. As a result, we expect the currency pair to post a rebound on an initial test of this level. For the week ahead, the USDJPY currency pair is expected to be flat.
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