Forex - USD/JPY weekly outlook: October 1 - 5

Investing.com - The U.S. dollar bounced off a two-week low against the yen on Friday, as traders started to readjust positions ahead of the Bank of Japan's next policy-setting meeting on October 5.

USD/JPY hit 77.43 on Friday, the pair’s lowest since September 13; the pair subsequently consolidated at 77.93 by close of trade on Friday, down 0.28% on the week.

The pair is likely to find support at 77.43, Friday's low and resistance at 78.15, the high from September 24.

The dollar slumped to a two-week low against the yen early Friday as risk sentiment waned after dismal U.S. data sparked fresh concerns over the strength of the country's economic recovery.

Data Friday showed that the Chicago purchasing managers' index fell unexpectedly in September, entering contraction territory for the first time since September 2009.

The index fell to seasonally adjusted 49.7 in September from 53.0 the previous month. Analysts had expected the Chicago PMI to remain unchanged at 53.0 in September.

Separately, a revised report by the University of Michigan showed that its index of consumer sentiment fell more-than-expected in September, ticking down to a seasonally adjusted 78.3 from 79.2 the previous month. Analysts had expected the index o fall to 79.0 in September.

Also Friday, the U.S. Bureau of Economic Analysis said that personal spending rose in line with expectations in August, ticking up 0.5% after a 0.4% increase the previous month.

The flurry of data came a day after a report showed that the U.S. economy expanded 1.3% in the second quarter, down from a preliminary estimate of 1.7%, while separate data showed that U.S. durable goods orders fell 13.2% in August, the steepest decline since January 2009, compared to expectations for a 5.0% decline.

The U.S. dollar regained strength after the Bank of Spain announced that the recapitalization needs of Spanish banks amounted to EUR59.3 billion, broadly in line with market expectations, relieving some fears that banks would need more aid.

The stress test results came a day after the Spanish government announced a crisis budget for 2013, based mostly on spending cuts, in what many analysts see as an effort to pre-empt the likely conditions of an international bailout.  

Ministry budgets were slashed by 8.9% for next year and public sector wages frozen for a third year as Prime Minister Mariano Rajoy battles to trim one of the euro zone's biggest deficits.

Market players will now be watching for a potential downgrade of Spanish sovereign debt by Moody's Investors Service in the coming days as the deadline for that review closes.

Moody’s said in August its review on Spain’s Baa3 rating would continue through the end of September, which comes Sunday. A move below Baa3 would drop Spain’s debt into junk.

In the week ahead, investors will be eyeing a policy decision by the Bank of Japan, after the central bank eased monetary policy at its previous policy-setting meeting.

The U.S. is to release its monthly report on non-farm payrolls on Friday, which will allow investors to gauge the strength of the faltering labor market.

Market players will also be focusing on the European Central Bank’s policy meeting on Thursday, as traders continue to eye developments in Spain.

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

Monday, October 1

Japan is to publish data on the Tankan manufacturing and non-manufacturing indexes, both leading indicators of economic health.

Later in the day, the U.S. is to publish a report by the Institute for Supply Management on manufacturing PMI, a leading indicator of economic health.

Also Monday, Federal Reserve Chairman Ben Bernanke is due to speak at the Economic Club of Indiana, in Indianapolis. Traders scrutinize his public engagements as they are often used to drop subtle clues regarding future monetary policy.

Tuesday, October 2

Japan is to produce government data on average cash earnings, which is directly correlated with spending.

Wednesday, October 3

The U.S. is to produce industry data on non-farm employment change, followed by a report by the Institute for Supply Management on non-manufacturing activity, as well as government data on crude oil stockpiles.

Thursday, October 4

The U.S. is to release weekly government data on unemployment claims, as well as official data on factory orders. Later in the day, the Federal Reserve is to produce the minutes of its September policy meeting.

Friday, October 5

The Bank of Japan is to announce its benchmark interest rate; the announcement is to be accompanied by the bank’s rate statement, which contains insights into current economic conditions from the bank’s perspective.

Later in the day, the U.S. is to round up the week with closely watched official data on non-farm payrolls and the unemployment rate, as well as a report on average hourly earnings.