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Dollar/yen  finally broke out, but it retreated quite fast.  Household spending, Retail sales and industrial production are the highlights of this week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Last week Tokyo Core CPI  dropped 0.2% more than the 0.1% decrease predicted while the national CPI increased by 0.1% contrary to predictions of 0.1% fall. Corporate Services Price Index also decreased more than expected by 0.5% indicating mixed tendencies in the market. Will we see a clear cut recovery in the near future?

USD/JPY  daily chart with support and resistance lines on it. Click to enlarge:USD JPY Chart August 29 September 2 2011

Let’s Start:

  1. Household Spending: Monday, 23:30. Household spending dropped for the ninth time in June, down 4.2% after decreasing 1.9% in May. The current reading is worse than the 2.2% drop predicted. The only rises were furniture and household  utensils. A smaller drop of 2.8% is expected now.
  2. Retail Sales: Monday, 23:50. Retail sales expanded for the first time since the earthquake and tsunami in March rising by 1.1% from a year earlier. This is an early indicator of economic recovery. Retail sales edged up 2.9% compared to May amid a boost in production and a rise in confidence. Further increase of 1.4% is predicted.
  3. Manufacturing PMI: Tuesday, 23:15. Japanese manufacturing activity grew in July reaching 52.1 from 503.7 in June crossing the 50.0 point line for the third consecutive month indicating a continuation of Japan’s manufacturing recovery. The employment index increased to 50.9 from 49.5 in June, showing the first month of job growth since March.
  4. Prelim Industrial Production  : Tuesday, 23:50. Japan’s industrial production expanded by 3.8% percent in June after a 6.2% surge in the previous month. This reading is lower than the 4.6% gain expected, however this is the third straight increase in production since the devastating March 11 earthquake and tsunami. Another gain of 1.6% is forecasted.
  5. Average Cash Earnings: Wednesday, 1:30. The total cash earnings of a  regular employee in Japan dropped by 0.8% compared to a year ago reaching Y246,202 in June following 1.0% increase in the previous month. Another decrease of 0.4% is predicted.
  6. Housing Starts: Wednesday, 5:00. Housing starts in  Japan  climbed 5.8% in June from a year earlier rising for the third straight month indicating supply constraints, due to the earthquake and Tsunami, are over. This reading tops the forecast for 4.9% increase. Another gain of 4.7% is expected.
  7. Capital Spending: Thursday, 23:50. Japanese companies continued to increase spending following the earthquake and tsunami rising by 3.3% in the first quarter, broadly in line with 3.2% rise expected and following 3.8% increase in the 4th quarter of 2010. A smaller increase if 1.1% is forecasted.

*All times are GMT

USD/JPY  Technical Analysis

Dollar/JPY started the week with the usual narrow range trading. Towards the end of the week it made an upwards move and temporarily breached the 77.50 line (mentioned last week). This was short lived, and the pair got back under 77 once again.

Technical lines, from top to bottom:

81,50 was a peak before the recent leg down and has a significant role.  81.06 was a weak line of support in May and slowed down a second move upwards.

80.50 held the pair several times recently and remains a strong and immediate line of resistance on another attempt to settle above 80.  The round number of 80 was broken, but this was short lived, and its strength remains.

79.75 is the historic low of 1995 and played a critical role when the pair collapsed in March. It is now a minor line, after being shattered.  Below, 79.30 proved to be a persistent cap for dollar/yen, holding down recovery attempts. also just now. An attempt to break higher resulted in a drop lower.

78.50 provided some support before the next leg down, and is now weak resistance.  Further down, 78.20 worked as temporary resistance, and provides some support.

77.50 was the bottom border of the range, and is set to work as resistance if the pair breaks higher. This line was temporarily breached, but remains of high importance. It is followed by 77, which was a significant cap for the range trading seen for yet another week.

Further below we have the swing record low of 76.25, which was seen on the  huge collapse in March  and was a bottom just now.  The new low of 75.95 is the final frontier in charted territory. Below, the round number of 75 is the next potential cushion.

I remain bullish on USD/JPY.

With no QE3 in the US and the Japanese economy in recession, there’s a better chance of a rise.

Further reading: