USD/JPY Outlook – August 22-26

Dollar/yen managed to break to new lows, as the interventions proved insufficient. Inflation figures are the highlights of this week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Last week, Japan’s economy continued to improve contracting less than predicted in the second quarter. Gross domestic product shrank by 0.3% amid recovery in manufacturing and exports. Analysts expected GDP to contract by 0.6%. Is expansion right around the corner?

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

Let’s Start:

1. CSPI  : Tuesday, 23:50.  Japan’s corporate service price index dropped 0.7% in  June on a yearly base from 0.9% decline in May. The relatively small decrease in prices was due to rising prices in transportation.
2.  National Core CPI  : Thursday, 23:30.Japan’s core consumer prices increased by 0.4% in June from a year earlier, the third consecutive rise. Core consumer prices in Tokyo, rose 0.4% in July from a year earlier, after a 0.1 percent rise in June, above market forecast for a 0.2% rise.
3. Jackson Hole Symposium: Thu-Sat. Jackson Hole Symposium in Wyoming is a big economic event attended by central bankers, finance ministers, academics, and financial market participants from around the world.  Federal Reserve chairman Ben Bernanke will present his views on the economy and perhaps suggest new steps. QE3 is anticipated by many, but the chances are not that high.

*All times are GMT

USD/JPY  Technical Analysis

Dollar/yen traded in a very narrow range throughout most of the week, capped by 77 (a new line that didn’t appear last week). On the down side, 0.7625 provided support, but was temporarily broken for a new record low at 75.95.

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 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. It is followed by 77, which was a significant cap for the range trading seen now..

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.

Japan is still in recession, for a third quarter in a row. While the efforts of the BOJ are not effective, the lack of QE3 in the US can push the pair higher.

Further reading:

• For a broad view of all the week’s major events worldwide, read the  USD outlook.
• For EUR/USD, check out  the  Euro to Dollar forecast.
• For GBP/USD  (cable), look into the  British Pound forecast.
• For the Australian dollar (Aussie), check out the  AUD to USD forecast.
• For the New Zealanddollar (kiwi), read the  NZD forecast.
• For USD/CAD (loonie), check out the  Canadian dollar
• For the Swiss Franc, see the  USD/CHF forecast.