Global macro overview for 19/06/2017:
Today's update of the Reuters Tankan Index from Japan, a benchmark that tracks sentiment at large firms, may drop a fresh clue regarding the economic expansion. Currently, Japan's third-longest postwar expansion is underway as the forward-looking economic indicators are at the elevated levels. The PMI data of the manufacturing and industrial sectors are painting an optimistic picture of the overall economic development. Stronger than expected growth in the manufacturing and services sectors in May underpinned a rise in overall activity in just under three and a half years. Moreover, the Bank of Japan remains optimistic. Despite the fact, that the BoJ has left the interest rate unchanged at its last meeting, it improved its economic outlook 2017-2018 fiscal year to 1.6%. At the press conference, BoJ Governor Kuroda said that Japanese economy is growing steadily, but the inflation is still not picking up as projected. Nevertheless, if the economy continues to expand, the output gap will shrink and that process will have an impact on inflation. Today's update of Tankan Index for June may reveal whether Japan's corporate sector also anticipates firmer economic activity ahead.
Nevertheless, the Japanese yen should remain under pressure as other central banks, like the Federal Reserve, started to hike the interest rates. There is still a good chance that the Bank of England and the ECB will re-think their monetary policy stances and start to raise the interest rates slowly. In this case, the BoJ will not have any other option but to join them.
Let's now take a look at the USD/JPY technical picture on the H4 timeframe. The price has broken above the golden trend line resistance and now is trading around 38% Fibo retracement of the previous swing down. The next support is seen at 110.81 - 110. 61 and the next resistance lies at 111.41.
