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Dollar/yen managed to drift higher and step away from the “intervention zone”. Will this hold? BSI Manufacturing Index and Tertiary Industry Activity 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 maintained the overnight call rate at 0.10%. Leading Indicators climbed more than predicted to 106.0 but Core Machinery Orders slid 8.2%, worse than the 3.9% drop predicted indicating a bumpy road to recovery.

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

USD JPY Chart September 12 16 2011

Let’s Start:

  1. BSI Manufacturing Index: Sunday, 23:50.Japan’s large manufacturers’ business confidence plunged in the second quarter reaching -23.3 after decreasing   to-3.2 in the previous quarter. This reading is way below estimations of a drop to -2.1. Business confidence tumbled following the March 11 earthquake and tsunami cutting supply chains. Nevertheless Japanese economy has been recovering at a good pace ever since and pessimism is predicted to decrease this time.
  2. Monetary Policy Meeting Minutes: Sunday, 23:50. At the last meeting of the BOJ in July 11 and 12 the members voted to maintain interest rate range between zero to 1.0% and agreed to enhance easing measures and continue buying financial assets to help recovery. The BoJ upgraded again its economic assessment of the economy.
  3. Tertiary Industry Activity: Sunday, 23:50.Japan’s service sector index increased 1.9% in June following 0.8% increase in May. This reading is considerably higher than the 1.0% predicted by analysts indicating expansion in the market. A smaller gain of 0.3% is expected.
  4. Revised Industrial Production: Wednesday, 4:30.Japan’s industrial production rose beneath expectations by 0.6% in July following a 3.8% increase in June. Analysts estimated a 1.5% increase. However production is recovering and we are going to see a higher increase this time. Another gain of 0.6% is forecasted.

*All times are GMT

USD/JPY  Technical Analysis

Dollar/yen started the week with some hesitation. After breaking above the 77 line (mentioned last week), it traded between this line and 77.85 throughout the rest of the week, before closing at 77.56.

Technical lines from top to bottom

We start from 82.23, which was a stubborn peak during the month of May. 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 run through.

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 another downwards leg.  78.50 provided some support before another drop, and is now a weak line of resistance.

Further down, 78.20 worked as temporary resistance, and has the same role now.  77.85 was tough resistance just now and serves as the immediate cap.

It is followed by 77, which was a significant cap for the range trading seen for yet another week.  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 low record of 75.95 is the final frontier in charted territory. Below, the round number of 75 is the next potential cushion.

I am bullish on USD/JPY.

The US dollar is reasserting itself as the safe haven currency. This means that the yen loses some of its charm. Even if the Japanese authorities don’t follow their Swiss counterparts with an intervention, the pair has room to rise.

Further reading:

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