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Japan’s rate decision and the BOJ press conference are the major events this week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Last week brought positive readings in Average Cash Earnings, Economy Watchers Sentiment and the Current Account rising above expectations indicating a real trend of recovery in the Japanese economy. The yen benefited from the horrible Non-Farm Payrolls in the US.

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

Let’s Start:USD JPY Chart July 11 14 2011

  1.  M2 Money Stock:  Sunday 23:50.Japan’s money stock increased 2.7% in May from a year earlier after gaining the same in April indicating a rising trend in economic activity. A rise of 2.8% is expected now.
  2. Household Confidence: Monday, 5:00. Japanese consumer confidence got better in May reaching 34.2 from33.1 in April but below the 34.7 expected. Although the reading indicates pessimism and contraction a slow recovery is underway.  Another increase to 35.7 is predicted.
  3. Prelim Machine Tool Orders: Monday, 6:00. Machine tool orders increased by 34.2% on a yearly base reaching 108.16 billion yen in May due to rising domestic and foreign demand.
  4. Tertiary Industry Activity: Monday, 23:50.  The service sector climbed a seasonally adjusted 2.6% in April amid a moderate recovery from the devastating earthquake and tsunami on March 11. The reading was lower than the 2.8% gain anticipated and followed a 5.9% plunge in March. A small gain of 0.8% is expected now.
  5. Rate decision: Tuesday. The Bank of Japan has decided to maintain the nation’s interest rate between 0% and 0.1% as a supportive measure following the March 11 disasters although there is an economic recovery in the recent months. No change in rates is expected.
  6. Revised Industrial Production: Wednesday, 4:30. Industrial production climbed 5.7% in May following 1.6% in April and above forecasts of 5.5% gain. A pick up in the automobile industry was the main factor for this rise. Factory output is expected to continue in the next months. The same increase is forecasted this time.
  7. BOJ Monthly Report: Wednesday, 5:00. In the previous BOJ monthly report it was stated thatJapan’s economy keeps facing downward pressure from the March 11 earthquake and tsunami although there are signs of a pick up in economic activity.
  8. Monetary Policy Meeting Minutes: Thursday, 23:50. The BOJ is going to publish the summary from its previous monthly monetary policy meetings discussing key issues that concern future interest rates shifts.

*All times are GMT

USD/JPY  Technical Analysis

The frustrating dollar/yen climbed gradually throughout the week, and managed to temporarily breach the 81.33 line (mentioned  last week). But the release of the awful N0n-Farm Payrolls in the US sent it plunging back almost all the way down.

Technical lines, from top to bottom:

83.30 is a weak line that capped the pair just before the disaster at the beginning of March and also working as support a few months earlier.  82.87 was the trough before the BOJ intervention in September 2010 and also played an important role in recent weeks as the peak of a recovery attempt.

82.20 capped the pair in a very stubborn way about a month ago and remains a strong line now.  81,33 proved to be a distinctive line separating ranges – it was a double top about a month ago. Despite the temporary breach, it remains of high importance.

81.06 was a weak line of support in May and slowed down a second move upwards. 80.70 capped the pair several times in recent weeks and but is now weaker.

80.50 can turn into a pivotal line, after providing some support on falls. The round number of 80 remains an important line. The pair didn’t fall below it now.

79.75 is the historic low of 1995 and played a critical role when the pair collapsed in March. It worked nicely recently and is closely watched by the authorities.

It’s followed by 79.16 which is minor resistance as well. The last line is 78.27 – both were significant before the big intervention.

Uptrend channel

As you can see on the graph, the pair has been trading in a clear uptrend channel since the beginning of June. We are currently close to the bottom of the channel.

I turn neutral on USD/JPY.

While the Japanese economy is weak (as seen in Tankan), this week’s winner in the “ugly contest” is the dollar, with the  poor Non-Farm Payrolls. All in all, this pair is bound to a narrow range. In the long run, the US dollar has room for gains, but not now.

Further reading:

For a broad view of all the week’s major events worldwide, read the  USD outlook.