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Dollar/yen  edged up for a second week in a row.  Core Machinery Orders and final GDP are the highlight of this week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Last week some encouraging figures were released with a 1.9% gain in Retail sales above the 0.7% increase expected and 2.4% gain in Prelim Industrial Production. Well above the 1.1% rise predicted furthermore Average Cash Earnings increased by 0.1% while expected to remain flat. Will this positive trend continue?

Updates: The US services sector is slowing down, and factory orders are falling. This weakened USD/JPY, that fell to 77.80. USD/JPY continues ticking lower, but very slowly. The dollar rose against most currencies on the S&P warning for Europe, but this pair didn’t feel it. The pair remains mostly unchanged as darker clouds appear over Europe. The big ECB disappointment rocked the pair, but it eventually returned to the same place, under 78.  See how to trade the US Consumer Sentiment with USD/JPY. Dollar/yen stabilized and wasn’t affected by the EU summit. US trade balance and consumer sentiment might move it.

USD/JPY  daily chart with support and resistance lines on it. Click to enlarge:USD/JPY Chart December 5 9 2011

  1. Leading Indicators: Wednesday, 5:00. Leading indicators dropped 2.2 points to91.6 in September contrary to predictions of a 96.3 reading. The main causes for this decline are the strong yen and global financial uncertainty. An increase to 91.8 is expected.
  2. Core Machinery Orders: Wednesday, 23:50. Core machine orders plunged 8.2% in September following 11.0% gain in the previous month indicating a setback inJapan’s recovery. The total number of machine orders in the fourth quarter is expected to increase by 4.8% while core machine orders are predicted to decline by 3.8%. A rise of 0.8% is forecasted now.
  3. Economy Watchers Sentiment: Thursday, 5:00.Japan’s service sector sentiment index increased to45.9 in October after45.3 in September but lower than the 46.7 expected. This is the first rise in three months and a sign of improvement although the outlook index, indicating the level of confidence in future conditions, dropped to 45.9 from 46.4 the previous month. A climb to 47.1 is expected in the service sector sentiment.
  4. BSI Manufacturing Index: Thursday, 23:50. Big Japanese manufacturers regained their optimism about conditions in the third quarter with a reading of 10.3 following minus23.3 in April-June quarter. Economists expected a higher score of 11.4. A rise to 11.4 is again predicted.
  5. Final GDP: Thursday, 23:50.Japan’s economy contracted in the second quarter due to the strong yen andEurope’s sovereign debt dropping 0.5% in line with expectations. In light of the reduced overseas demand the BOJ will have to ease its monetary policy further to bail out from recession. A smaller figure of 1.2% is forecasted.

* All times are GMT

USD/JPY  Technical Analysis

Dollar/yen opened with a gap to lower ground, but bounced off the 77.50 line (mentioned last week) before rising and hitting 78.28. It then remained in this range and closed just under 78.

Technical lines from top to bottom

80.25 was a swing low in June and a peak in July. The round figure of 80, which provided strong support, is the next line, and it is of high importance.

79.50, is the next line of resistance. This is the line that was reached after the recent intervention.  78.30 capped a second recovery attempt in November, after the intervention and had an important role earlier as well, working as support.

77.50 is now weaker once again, although it is still of importance after capping fresh attempts to move higher once again during October. It turned into support after the intervention and assumes this role once again.  The round number of    77, remains a significant cap for the range trading that characterizes the pair and proved to be stronger now.

76.75 follows closely after providing strong support of late.  Further below we have the swing record low of 76.25 which is still of importance after working well as resistance.

A previous low of 75.95 is minor support.  The last record low of 75.57 where the BOJ intervened is the final frontier in charted territory for 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 am bullish on USD/JPY.

As the US economy continues showing positive signs, the dollar is becoming a senior safe haven currency in comparison to the Japanese yen. Also the Japanese trade deficit weighs on the currency.

Further reading: