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Dollar/yen  finally moved and reached a new all-time lo before returning back to range.  The interest rate decision is the major event this week.  Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Last week signs of a slowdown were seen in the Japanese economy with All industries activity index dropping by 0.5% more than the 0.2% decline anticipated and Revised industrial production index gained 0.6% less than the 0.8% predicted. Will this trend continue?

USD/JPY  daily chart with support and resistance lines on it. Click to enlarge:USD JPY Chart October 24 28 2011

  1. Trade balance: Sunday, 23:50. Japan’s trade balance declined to -294.4 billion yen in August following a previous drop to 130.5 billion yen during July (revised to -160.2 billion yen). Exports increased by 2.8% while 8.0% rise was predicted.Japan’s trade balance declined is expected   to decline to -100 billion.
  2. Retail sales: Wednesday, 23:50. Japanese retail sales dropped 2.6%  in August on a yearly base following 0.6% gain in the previous month. The slide was much larger than the 0.6% drop predicted. Retail sales is predicted to remain flat this time.
  3. Rate decision: Thursday. Overnight Call Rate was maintained at the range of 0.0% to 0.1% with a continuation of the monetary easing plans in light of global uncertainty. BOJ marked the ongoing recovery ofJapan’s domestic economy but decided to extend its lending program by six more months. No change is predicted.
  4. BOJ outlook report: Thursday, 6:00. Bank of Japan warns that the outlook is highly uncertain despite its estimate of modest growth in the 4th quarter. The global slowdown is bound to affect export orders. Oversees demand for Japanese electronic components may be temporarily weakened and public investment is currently very low.
  5. Household spending: Thursday, 23:30. Japanese household spending decreased by 4.1% in August from a year earlier more than the 2.7% drop predicted amid concerns fora   global slowdown reducing household spending. Another decline of   -3.4% is forecasted.
  6. Tokyo core CPI: Thursday, 23:30.Japan’s core consumer prices increased inAugust by 0.2% on a yearly base due to growing energy costs butTokyo’s core CPI fell by 0.1% following 0.2% decrease in the previous month in light of lower prices of TVs and air conditioners. A further drop of 0.4% is expected now.
  7. Average cash earnings: Friday, 1:30. Japanese total cash  earnings declined by 0.6% in August from a year earlier sliding the third consecutive month. This reading was contrary to economists predictions of 0.7% increase. Overtime pay dropped 2.2%

*All times are GMT

USD/JPY  Technical Analysis

Dollar/yen kicked off the week with yet another attempt to break higher and met strong resistance at 77.50 (mentioned last week). It then changed course and eventually fell. It temporarily dropped to a new all time low of 75.76, but this was very brief.

Technical lines from top to bottom

79.30 proved to be a stubborn cap for dollar/yen, holding down recovery attempts. It was last seen in July.  78.50 provided some support before another drop, and is now a weak line of resistance.

77.85 was tough resistance when the pair made an attempt to make an upwards move higher in September. 77.50 has a stronger role now, after capping fresh attempts to move higher once again.

The round number of    77, remains a significant cap for the range trading that characterizes the pair even although it’s weaker now.  Further below we have the swing record low of 76.25 which is still of some importance.

The previous low record of 75.95 is still relevant, even though it was broken now.  Below, the round number of 75 is the next potential cushion and an area where the Japanese authorities will be keen to intervene.

I remain neutral on USD/JPY.

With the recent improvements in the US economy, the pair has room for rises in the long run. But even with the dip lower and the wider trading range, there is still little hope for large movements soon.

Further reading:

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