USD/JPY Outlook – August 8-12

The third intervention in less than a year left the pair about 200 pips higher, but there are doubts about its efficiency, especially as the US got downgraded. Monetary Policy Meeting Minutes, Tertiary Industry Activity and Core Machinery Orders are the main events this week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Last week the BOJ held its monetary policy meeting where further asset purchase programs and lending facilities were agreed on.   Furthermore the BOJ Japan sold yen in the market trying to curb the strength of its currency and lifting the USD/JPY pair.  Will this monetary policy boost the Japanese market recovery?

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

Let’s Start:

1. Bank Lending: Sunday, 23:50. Bank lending dropped 0.6% in June from a year earlier. This is the 19th consecutive decrease indicating less demand for new loans and slow activity in the Japanese market.
2. Economy Watchers Sentiment: Monday, 5:00.Japan’s service sector confidence improved for a third consecutive month in June rising to 49.6 from36.0 in May well above economists expectations of 40.00. The sentiment is improving due to optimistic forecasts for business conditions in the upcoming future.  Another rise to 50.3 is expected now.
3. Monetary Policy Meeting Minutes: Monday, 23:50. The Bank of kept its monetary policy on hold but expanded a loan scheme to industries encouraging growth. The BOJ also raised its assessment regarding the pace of recovery in the Japanese market.
4. Household Confidence: Tuesday, 5:00. Japanese consumer confidence improved in June rising to 35.3 from34.2 in May. This small improvement indicates a modest recovery but the figure is still below the 50.0 point line. Another improvement to 37.6 is forecasted.
5. Prelim Machine Tool Orders: Tuesday, 6:00. Machine tool orders edged up 53.3% on the year to 128.3 billion yen in June increasing for 19th consecutive month following 34.0% in May indicating improvement in the Japanese market.
6. Tertiary Industry Activity: Tuesday, 23:50. Japanese tertiary industry activity increased by 0.9% in May following 2.5% rise in April indicating an upturn in service consumption in the past three months. Another increase of 1.1% is predicted.
7. Core Machinery Orders: Wednesday, 23:50.Japan’s core machinery orders edged up in May by 3.0% the fastest pace in four as the economy recovers from its major earthquake and Tsunami. Internal construction and overseas demand will boost business spending.  A big rise of 1.9% is expected now.
8. Revised Industrial Production: Friday, 4:30.Japan’s industrial output increased by 6.2% in May from a revised 3.9% indicating a rapid recovery following the massive earthquake in March. This was the second biggest rise since March 1953. A further rise of 3.9% is predicted now.

*All times are GMT

USD/JPY  Technical Analysis

Dollar/yen drifted lower and even touched the all time low of 76.25 (discussed last week). It was capped by 78.20. And then came the intervention. The pair temporarily breached the round number of 80, but quickly fell below.

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 in recent weeks 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 now distant support. It is followed by 76.70, which was the bottom just a few weeks ago.

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 am bearish on USD/JPY.

The historic credit rating downgrade of the US by S&P leaves the pair vulnerable to falls, as the yen is till perceived as a safe haven currency.

The intervention isn’t likely to be remembered, unless it is followed by a much stronger one. After the S&P dust settles, a lot will depend on developments in Europe, which got some hope from Berlusconi’s surrender.

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 Zealand dollar (kiwi), read the  NZD forecast.
• For USD/CAD (loonie), check out the  Canadian dollar
• For the Swiss Franc, see the  USD/CHF forecast.