USD/JPY Outlook November 5-9

USD/JPY continued higher for another week, temporarily touching a 6-month high. The move came on more Japanese QE and also on a surge of the dollar across the board. Core Machinery Orders and Current Account are the main market movers this week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Last week The BOJ enlarged the quantitative easing program by 11 trillion yen in its rate decision meeting while official expectations stood on 10 trillion. The move was prompted by Japanese politicians , recent weak data such as the rising trade deficit and slower retail sales. Will this downward trend continue? In the US, a better than expected jobs report certainly boosted the dollar, and the yen wasn’t spared.

Updates: Leading Indicators fell to 91.7%, a notch below the estimate of 91.8%. Core Machinery Orders and Current Account will be released on Wednesday. USD/JPY is steady after sliding on Tuesday. The pair was trading at 80.20. Obama is re-elected.  Dollar/yen makes a roller coaster move to 80.40 and then below 80.

USD/JPY  daily chart with support and resistance lines on it. Click to enlarge:

1. Leading Indicators: Tuesday, 5:00.Japan’s leading indicator was revised down to 93.2 for August, higher than July’s 93 reading. The coincident index was revised down to 93.5, below July’s reading of 93.8. Both figures came in line with forecasts. A further decline to 91.8 is expected now.
2. Core Machinery Orders: Wednesday, 23:50.Japan’s core machinery orders dropped  3.3% in August from a 4.6% rise in July, worse than the 2.4% drop predicted by analysts. The weakening demand from China as well as the EU debt crisis are taking their toll onJapan’s economy. Another drop of 2.0% is forecasted.
3. Current Account: Wednesday, 23:50. Japan’ monthly adjusted current account showed a surplus of 722.3 billion yen, way above predictions of a 520.0 billion yen surplus and following 335.4 billion yen a month earlier. On a yearly base,Japan posted a current account surplus of 454.7 billion yen in August, the Ministry of Finance said on Tuesday, up 4.2 percent on year. Adjusted current account is forecasted to reach 210 billion yen.
4. Economy Watchers Sentiment: Thursday, 5:00.Japan’s service sector sentiment index declined to41.2 in September, in light of rising concerns aboutJapan’s economic outlook.Japan’s economy has been weakening recently, in contrast to its previous view that the economy had been advancing moderately. Another drop to 40.6 is expected now.
5. M2 Money Stock: Thursday, 23:50. The total domestic currency in circulation increased 2.4 % from a year earlier in September following the same rise in the previous month, in line with predictions. The same rise is expected now.
6. Consumer Confidence: Friday, 5:00. Japanese consumer sentiment declined slightly in September to 40.1 from 40.5 in August, indicating consumer spending remains weak. Nevertheless, consumer sentiment has recovered from a dip of around 33 following last year’s disaster. A further decrease to 39.7 is expected now.

*All times are GMT.

USD/JPY  Technical Analysis

$/yen began the week with a first attempt to recapture the 80 line (discussed last week). After the pair fell back down, a gradual climb began, that even temporarily crossed the 80.60 line, before the pair fell and closed at 80.42.

Technical lines from top to bottom

We start from higher ground this week. 85.50 is a high peak seen back in early 2011. 84.20 is a more recent swing high, seen in early 2012.

It is followed by 83.34 which capped the pair in April and also beforehand. 82.87 is a veteran line – that’s where the BOJ intervened for the first time back in 2010.

81.80 capped the pair in April, and is the level of the “shoulders” in the upwards thrust seen at the time. 81.43 is stronger after serving as resistance for a recovery attempt.

80.60 provided support for the pair around the same time, and served as a bouncing spot for the next moves. It proved its strength as resistance in June 2012, more than once. This is a key line now.  The round number of 80 is psychologically important, even though it was crossed several times in recent months. It is a serious battleground now.

79.70 was a cap was seen in June 2012. It proved its strength as resistance once again in July 2012 and proved critical before the downfall in August 2012. It is weaker now. 79.05 capped the pair in September 2012 and similar levels were seen in the past. Despite being temporarily overrun, the line still matters.

78.80 proved its strength as resistance in August 2012 again and again. The last attempt at the beginning of October should monitored. The round number of 78 is now stronger support after being the bottom of the range  and is becoming stronger after working as a cushion also in September 2012.

77.40 was the extended low line in September 2012, until the pair rebounded. It is followed by 77, which is only minor support.

Steep Uptrend Channel  

Since mid-October, USD/JPY is trading in an upwards channel, with uptrend resistance being more significant than support.  The pair is now in the middle of the channel.

I turn from bullish to neutral on  USD/JPY.

After the big rise, some consolidation can happen, especially as the yen still is a safe haven currency. The US Presidential Elections could strengthen the US dollar, but the yen isn’t likely to be left behind. The recent Japanese QE was large, but not a shocker.