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The US dollar enjoyed a spectacular week, as USD/JPY  gained  over    400 points. The yen took a beating after the BoJ shocked the markets with an  increase in monetary stimulus.  This week’s highlight is the minutes of last week’s BoJ Monetary Policy Statement. Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.

In the US, the Fed ended its QE program and issued a hawkish policy statement. GDP  looked sharp, posting strong gains in Q3. On the other side of the Pacific, the BOJ shocked markets by  unexpectedly increasing its  monetary base from JPY 60-70 trillion per year to JPY 80 trillion. In addition, the Japanese  pension fund, GPIF, announced a change in its  investment allocations, leaning more towards stocks. This hit the yen hard across the board.

[do action=”autoupdate” tag=”USDJPYUpdate”/]

USD/JPY graph with support and resistance lines on it:

USDJPY Forecast Nov3-7

  1. Final Manufacturing PMI: Tuesday, 1:35. The PMI continues to post readings slightly over the 50-point level, which is a separator between expansion and contraction. The index posted a reading of 51.7 points  last month, which matched expectations. The estimate for the September reading stands at 52.8 points.  
  2. Monetary Base: Tuesday, 23:50. This indicator has been  on a downward trend  for most of 2014, with the indicator posting a gain of 35.3% in September, shy of the estimate of 38.9%. The forecast for the upcoming release stands at 36.2%.  
  3. Average Cash Earnings: Wednesday, 1:30. This indicator is an important indicator of consumer spending. Last month, the indicator slipped to 1.4%, ahead of the estimate of 1.1%. The downward trend is expected to continue, with the forecast standing at 0.9%.
  4. BOJ Governor Haruhiko Kuroda Speaks:  Wednesday, 2:30. Kuroda will deliver remarks at an event in Tokyo. A hawkish speech is bullish for the Japanese yen.
  5. 10-y Bond Auction: Wednesday, 3:45. The yield on 10-year bonds has been very steady, with three consecutive releases of 0.52%. Little change is expected in the upcoming release.
  6. BoJ Monetary Policy Meeting Minutes: Wednesday, 23:50. The BoJ will release the minutes of its policy statement last week. With the BoJ surprising the markets by increasing monetary stimulus, the markets will be eagerly waiting for this release, which traders should treat as a market-mover.
  7. Leading Indicators: Thursday, 5:00.  Leading Indicators  is considered a minor event, since most of the data has already been released. The indicators is expected to rise to 105.5% in the September reading.

* All times are GMT

USD/JPY Technical Analysis

Dollar/yen started the week at 108.18. The pair  touched a low of 107.60  but  then reversed directions, posting huge gains on Friday. The pair touched resistance at 112.48 (discussed  last week). USD/JPY  closed the week at 112.30.

Live chart of USD/JPY: [do action=”tradingviews” pair=”USDJPY” interval=”60″/]

Technical lines from top to bottom:

With the dollar posting strong gains, we start at higher levels:

116.66 has provided resistance since October 2009.

114.65 is the next line of resistance. This line has remained intact since December 2007, when the yen was in the midst of a strong yen rally which saw USD/JPY drop below the 96 line.

113.68 was an important resistance line back in September 2005, when the dollar showed strength and moved as high as the 120 level.

112.48  was tested this week for  the first time since  January 2008, and has  switched to a support role. It is a weak line and could see action early in the week.

110.68 represented a high point of a strong dollar rally in August 2008,  which started around the key 100 level.

108.58 was easily breached late in the week and has reverted to a strong support level.

106.88 is the final support level for now.

I am  bullish  on  USD/JPY

The US economy continues to expand at an impressive clip,  led by  a strong GDP and excellent consumer confidence numbers.  With the Fed giving the economy a thumbs up and concluding QE, the next move is a rate hike in 2015.  In Japan, the BoJ raised stimulus in order to boost inflation, which remains below the central bank’s target of 2%. This resulted in sharp losses for the yen, and  fallout  from the  BoJ’s move could continue to weigh on the currency this week.

In our latest podcast, we  review  November’s big event and run down the recent ones:

Download it directly here.

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Further reading: