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Without serious intervention, Dollar/yen found itself around the historic lows once again. Will the BOJ move again? Gross domestic product event is the highlight of this week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

USD/JPY  daily chart with support and resistance lines on it. Click to enlarge:USD JPY Chart August 15 19 2011

Last week, the Japanese economy continued to improve reflecting an ongoing recovery process in the manufacturing sector with better than expected reading on Tertiary business purchases expanding by 1.9% and Machinery orders edging up 7.7%.

Let’s Start:

  1. GDP: Sunday, 23:50. Japan’s gross domestic product shrank 0.9% in the 1 st   quarter resulting from March’ earthquake following 0.8% contraction in the previous quarter.  Analysts predicted 0.5% decrease. Meantime GDP Price Index dropped 1.9% after 1.6% reduction in the previous quarter. Prelim GDP is expected to shrink further by 0.6% while GDP Price Index is expected to drop by 1.7%.
  2. Trade  Balance: Wednesday, 23:50. Japan’s adjusted merchandise trade balance dropped  to -191.2 billion yen in June, comparing with a prior reading -450 billion  yen a month earlier better than the -250.4 billion yen predicted with  exports improving and imports contracting. A further decrease in deficit to -120 billion is expected now
  3. All  Industries Activity: Friday, 4:30. All industries activities index  rebounded in May gaining 2.0%. The reading was above the 1.9% increase
    expected. A further rise of 2.3% is expected now.

*All times are GMT

USD/JPY  Technical Analysis

Dollar/yen started by gapping lower. While it did close the gap, it later fell to flirt with the historic low of 76.25 (discussed last week), and ranged with a top at around 77.

Technical lines, from top to bottom:

82.87 was the trough before the BOJ intervention in September 2010 and also played an important role recently as the peak of a recovery attempt.  82.20 capped the pair in a very stubborn way many weeks ago and remains a strong line now.

81,50 was a peak before the recent fall 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. It is followed by 76.70, which was the bottom just a few weeks ago and now provided resistance, even if it was broken once.

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.  In uncharted territory, the round number of 75 draws attention.

I turn from bearish to bullish on USD/JPY.

The move downwards seems to have reached a bottom. The US economy is showing some signs of improvement, and the BOJ is set to intervene once again at these historic levels, perhaps with some help from abroad. With Japan expected to remain in recession once again, there is room for an upside move once again.

Further reading: