further potential weakness in usdjpy may add downside pressure to toyota motor 2689862017

This coming Thursday, 30 March 2017 at 2330 GMT (Friday, 31 Mar at 7.30 am SG time) we will have a bunch of important economic data releases from Japan as follow;

• Consumer price inflation ex food for Feb  at 0.2% y/y consensus
• Unemployment rate for Feb  at  3% consensus
• Household spending for Feb  at -1.7% y/y consensus
• Industrial production (preliminary) for Feb at 1.2% m/m consensus

These data are important as they will drive inflationary expectations which will determine whether Bank of Japan’s “elusive” inflation target of 2% can be met in the near future since the start of Abenomomics in 2013.

From a financial market perspective, these data can impact the movement of the JPY in the short to medium-term (1 to 3 weeks) which is likely to trigger a similar directional movement in the benchmark Nikkei 225 stock index (especially export oriented stocks).

Since its medium-term swing high area (range top) of 115.35/116.00 seen in early March 2017, the USD/JPY had recorded a steep decline of 4.6% to print a recent three month low of 110.11 on 27 March 2017. The recent fall in USD/JPY (revival of JPY’s strength) came on the back of an improving Japanese inflation data recorded in January, a less hawkish Fed in the recent concluded FOMC meeting held on 15 March 2017 and weakness seen in equities due to an increasing risk of delay in implementation of Trumponomics (risk off factor).

Fundamental factors on the upcoming aforementioned economic data as follow;

• Core consumer price inflation ex food for January had rose to a positive growth of 0.1% y/y after close to a year of hovering in negative territory.  The most recent Corporate Service Price Index (CSPI) that measures the price of services traded among companies had continued to inch higher to record a growth of 0.8% y/y for January that managed beat expectations of 0.5%. Secondly, the flash Manufacturing PMI data for March had showed that input price inflation remained close to a two year high due a continuation of increases in purchase costs. Therefore, the recent positive CSPI and input prices data may translate into another month of positive growth in core consumer prices ex food for February.
• Industrial production had declined slightly to -0.4% m/m in January. The recent Flash Manufacturing PMI for March had indicated continued growth in production where the Manufacturing Output Index was at 53.4 for March (54.1 in February). This data suggests that the manufacturing sector continues to expand but at a slower rate. Thus, industrial production for February is likely return to positive growth.

Therefore, another positive reading seen in upcoming the core consumer price inflation (ex food) and a return to positive growth in industrial production is likely to reduce the expectations on further monetary easing from Bank of Japan that may see a further decline in USD/JPY which can trigger further potential weakness in export-oriented stocks such as Toyota Motor from a short to medium-term horizon (1 to 3 weeks).        

Now, let’s take a look at the latest technical elements of USD/JPY and Toyota Motor

Short-term technical outlook on USD/JPY

(Click to enlarge charts)

Key technical elements of USD/JPY

• The recent rebound from the 27 March 2017 low of 110.11 has managed to stall at significant resistance zone of 111.32/111.60 which is defined by the former range support in place since 06 February 2017, the median line of a short-term descending channel from 10 March 2017 high.
• Both daily and hourly RSI oscillators are still showing downside momentum without extreme oversold conditions. These observations suggest that price action may see further downside pressure at this juncture.

Key levels (1 to 3 days) of USD/JPY

Intermediate resistance: 111.32

Pivot (key resistance): 111.60

Supports: 110.10 & 109.40/10

Next resistance: 112.50/90

Technical outlook on Toyota Motor (TSE: 7203)

(Click to enlarge charts)

Key technical elements of Toyota Motor

• The stock remains below a long-term descending trendline resistance in place since March 2015 high.
• After its bearish reaction from the aforementioned descending trendline resistance on 16 December 2016, the stock has continued its descend and tumbled by 15% to print a recent low of 6100 on 23 March 2017.
• The significant resistance now stands at 6550 which is defined by a congestion swing high area from 13 February to 13 March 2017.
• Downside momentum remains intact as indicated by the daily RSI oscillator which remains bearish below its resistance at the 55% level.
• The significant medium-term support rests at the 5555/5510 zone which is defined by the long-term ascending trendline support from November 2011 low and the 1.00 Fibonacci projection of the decline from 16 December 2016 high to 09 February 2016 low projected to the congestion swing high area of 13 March 2017.
• The relative strength chart of Toyota Motor /Nikkei 225 continues show underperformance of Toyota Motor against the benchmark Nikkei 225 index.

Key levels (1 to 3 weeks) of Toyota Motor

Intermediate resistance: 6255

Pivot (key resistance): 6550

Support: 5555/5510

Next resistances: 6838 & 7324

Conclusion

As long as the 111.60 pivotal resistance is not surpassed on the USD/JPY, it is likely to stage another potential downleg to retest the recent minor swing low area of 110.10 before targeting the next support of 109.40/10.

If such expected further weakness materialises in USD/JPY, it can translate to a further potential decline in Toyota Motor towards its 5555/5510 support below its 6550 pivotal resistance.

However, a break above 111.60 on the USD/JPY may invalidate the preferred bearish scenario where Toyota Motor may also see a break above 6550 to see a further push up to retest its long-term descending trendline now acting as a resistance at 6838.

Charts are from eSignal

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