USD/JPY Outlook – January 10-14

Core Machinery Orders is the main event this week. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.

Japan’s prime minister Naoto Kan announced he wants 2011 to be the year Japan opens up to the world by reducing protections and called for debate on raising the sales tax to help the country’s finances and the nation’s aged population. Will the Sales tax help the Japanese economy or just further hurt consumption?

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

Let’s start:

1. Leading Indicators: Tuesday, 5:00. Japanese Leading Index a measure of future economic activity fell 1.4 points to reach 97.2 in October 2010 a bit lower than the 97.3 expected. Economic growth is expected to be sluggish through Q1 2011. A rise to 101.1 is predicted now.
2. Bank Lending: Tuesday, 23:50. The level of outstanding loans fell 2.1% year-on-year in November to Y391.92 trillion. This is the 12th straight y/y drop. Weak corporate fund demand continues to be the main cause of the bank lending decline.
3. Economy Watchers Sentiment: Wednesday, 5:00. The Economy Watchers’ index jumped to 43.6 in November from 40.2 in October, the first rise in four months thanks to rise in demand for electronics and clothing. The index stayed below the key 50 level for 42 months in a row. A moderate increase to 44.9 is predicted.
4. Core Machinery Orders: Wednesday, 23:50. Japan’s core machinery orders fell 1.4% in October after dropping 10.3% in September indicating caution in spending among companies due to economic uncertainty. An increase of 2.2% is forecasted.
5. CGPI: Thursday, 23:50. The index  measuring  prices  for corporate goods rose 0.9% on a yearly basis worse than 1.1% rise expected. 0.8% gain was measured in October. Export  prices  rose 1.2 percent on month but declined 3.1 percent on year, the data showed, while import  prices  added 2.5 percent on month and 3.9 percent on year. A rise of 1.0% is expected.

*All times are GMT.

USD/JPY Technical Analysis

After the yen enjoyed some strength at the end of 2010, the tables turned. After a struggle with the 82.34 level (mentioned last week), the pair moved quickly higher and event temporarily broke the 83.40 line (mentioned last week). It finally closed at 83.13, the levels seen two weeks ago.

Looking down, 82.87 was the area where the BOJ intervened, and it was an important level afterwards as well. Very close by, 82.34 was support in December and also capped the pair in the past week. It’s now a line of support.

Below, 82 capped the pair when it was attempting to reach historic lows two months ago. 80.87 is a weak line of suport, after providing support at the beginning of October. It’s followed by the strong  80.40 – the lowest close the pair ever had.

The last line for now is the lowest intra-day low of all times 79.75, reached back in 1995.

Dollar/yen is capped by 83.40, which worked as support and as resistance in recent months, and is now weak resistance.  Above, 84.50 is the highest level since October, and is a big hurdle.

Higher, 85.93 is the peak reached after the big intervention in September, and is strong resistance as well.  It is followed by two lines which are rather close – 86.35 was a support line in July and later switched to resistance. Right afterwards,  86.88, that worked as support earlier.

More important resistance is found at 88.10, which was a support line in March and later served as resistance. The last resistance line for now is 89.15 which capped the pair quite some time ago.

I remain bullish on USD/JPY.

The strengthening US economy will continue to push this pair higher, despite the disappointing Non-Farm Payrolls, even without an intervention from the BOJ.

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/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.