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The Japanese yen enjoyed fresh fears in the market and made gains against the dollar, with stronger gains in the crosses. This week, housing starts and trade balance are the main events this week. Let’s see what lies ahead, and an updated technical analysis for USD/JPY.

The only thing that stopped the yen was the excellent Non-Farm Payrolls release in the US. This took the pair back above the 1995 low.  Japan’s monetary base surged in April by 23.9% to 121.9 trillion yen after the central bank swamped markets with additional currency units to avoid borrowing costs from rising following the March 11 devastating earthquake. Will this move provide relief for the Japanese economy?

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

USD JPY Chart May 9-13

  1. Monetary Policy Meeting Minutes: Monday, 0:50. The minutes from the BOJ meeting in April describe Miyako Suda’s proposal to increase the total amount for financial asset purchasing by about ¥5 trillion which was voted down by the majority. It was decided to add ¥0.5 trillion for JGBs in the asset program.
  2. Leading Indicators: Wednesday, 6:00. Japan’s leading indicators climbed to 104.2 in February roughly in line with predictions of 104.3    following 101.5% in the previous reading. A decrease to 99.9 is predicted.
  3. Bank Lending  : Thursday, 0:50. Outstanding bank loans dropped fell 1.7% in March on a yearly base. This is the 16th decrease topped by the earthquake catastrophe which further decreased companies demand for short-term funding.
  4. Economy Watchers Sentiment: Thursday, 6:00. Japanese service sector confidence fell drastically following the deadly earthquake and tsunami reaching 27.7 from 48.4 in the previous month positioning Japan’s economy in its worst time due to the earthquake’s terrible ongoing effects. Bank of Japan warned that production and exports would remain weak for the foreseen period. A further drop to 24.3 is expected.
  5. Prelim Machine Tool Orders: Thursday, 7:00. The Japan Machine Tool orders dropped to 49.5% in March on a yearly base from 73.9% in February.  *All times are GMT

USD/JPY Technical Analysis:

Dollar/yen deteriorated gradually. After stopping to rest at 80.40 (discussed last week), the pair fell and even temporarily lost the 79.75 line that was the historic low. It eventually recovered and rose back to close at 80.61.

Technical levels from top to bottom:

85.50 is the top line – being the highest level in 2011 after the big intervention. It was reached after the stubborn line of 84.50 was broken. 84.50 capped the pair at the end of 2010.

84 was a lower peak before the March 11 catastrophe and minor resistance now. 83.40 is another weak line after capping the pair just before the disaster 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 now as the peak of a recovery attempt. 82 is now a minor line, after being shattered too many times in recent weeks, but it’s still of importance after working in both directions.

80.90 was a line of struggle just now and a double bottom a few months ago. Strong support is at the 2010 low of 80.40, which was encountered now.

79.75 is the historic low of 1995 and played a critical role when the pair collapsed in March. The current false break shows that it’s weaker, but shouldn’t be underestimated. 79.16 is minor resistance as well, followed by 78.27 – both were significant before the big intervention.

I am neutral on USD/JPY.

The Japanese economy isn’t doing well, even before the earthquake. And the NFP gives some hope after bad figures in the US. But the accelerating crisis in Europe is likely to trigger risk aversive flows that strength the yen.

Further reading: