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The yen retreated from the intervention zone. Is this the beginning of a trend?  Preliminary GDP data, rate decision and BOJ’s press conference are the highlight of this week.   Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Last week mixed results were released amid an unexpected drop  in Japan’s  core machinery orders, with a 7.1% drop in December indicating the stagnating effect of the strong yen and the global slowdown. However consumer sentiment unexpectedly increased to 40 from 38.9 while expected to reach 38.6. Will  Japan be  able to hold off a deeper decline?

Updates: The Japanese economy contracted by 0.6%, double the early estimates. Dollar/yen is still around 77.50. The BOJ announced more QE and an inflation target of 1%. Dollar/yen continues higher and seriously challenges the critical 78.30 line. Slow growth in US retail sales limited the rise for a short while. The pair broke above the all-important 78.30 line, and continues higher. Seeing this pair move like this isn’t common. Dollar/yen continues higher, as the chances of US QE3 are reduced. 79 is close. Good news from the US continue to push the pair higher, and it crossed 79.

USD/JPY  daily chart with support and resistance lines on it. Click to enlarge:USD/JPY Chart February 13 17 2012

  1. Prelim GDP: Sunday, 23:50. According to the early estimate, GDP expanded 1.5% in the third quarter, in line with predictions. The positive reading comes after three quarters of contraction and is attributed to the rapid reconstruction work following the Earthquake and tsunami in March. Prelim GDP Price Index dropped 1.9% in the third quarter after plunging 2.2% in the second quarter. GDP is expected to contract 0.3% while GDP Price Index is predicted to decline 1.6%.
  2. Tertiary Industry Activity: Sunday, 23:50. The service sector inJapan dropped 0.8% in November after gaining 0.7% in the previous month. Declines occurred in the wholesale and retail trade; personal services; finance and insurance; scientific research and health care. An increase of 0.9% is predicted now.
  3.  Rate decision: Tuesday. The  Bank of Japan  maintained its  overnight call rate at a range of 0 to 0.1% by a unanimous vote.  The BOJ decided these low rates will be kept until price stability is achieved and growth rate will continue at a stable pace.The Bank of Japan also kept its  monetary policy  concerning its  quantitative easing  program. No change  is expected this time.
  4. Revised Industrial Production: Tuesday, 4:30. Japanese industrial production dropped a revised 2.7% in November after dropping 2.6%, in October. The reading was worse than the 2.4% decline predicted by analysts.  A climb of 4.0% is anticipated.
  5. BOJ Monthly Report: Wednesday, 5:00. The BOJ announced in its last meeting held in January 2012 thatJapan’s recovery is slower than expected. Economic activity is mostly flat the passing month due to the global slowdown in and the appreciation of the yen. However household demand registered a modest increase. A moderate recovery is expected with amid global economic improvement and continuation of the reconstruction work in Japan.
  6. Monetary Policy Meeting Minutes: Thursday, 23;50.   At the last monetary policy meeting held on January 23, 2012 BOJ members voted unanimously to maintain overnight call rate at around 0 to 0.%. Growth inJapan’s economic activity stopped mainly due to the slowdown in overseas economies and of the appreciating yen as well as the remaining effects of the flooding inThailand. Domestic demand rose moderately with relatively strong private consumption. However exports and production remained flat. BOJ members predictJapan’s economic activity will remain flat lowering its. growth outlook for 2012 to 2% from 2.2%.

* All times are GMT

USD/JPY  Technical Analysis

$/yen climbed gradually during the week, and eventually broke above the 77.50 line (discussed last week) and finally closed just beneath this line.

Technical lines from top to bottom

We start from one line higher than last week. 80.25 was a swing high back in July and serves as minor resistance. The round number of 80, which provided strong support in June, 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 last non-stealth intervention.  78.30 capped a second recovery attempt in November, after the intervention and had an important role earlier as well, working as support. This is the key line on the upside for now.  The last test was in January 2012.

77.50 is now a critical line. It worked well also in October and the surge in February 2012 didn’t provide a clear break. The round number of    77, is a significant cap once again and was only temporarily breached.

It’s followed closely by 76.60 which was a significant line of support at the beginning of 2012. Once it was broken to the downside, any attempts to move higher will be capped by this level. Further below we have the swing record low of 76.25 which is more of a pivotal line at the moment.

A previous low of 75.95 is now stronger support. It kept the pair from falling to lower ground.  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 remain bullish on USD/JPY.

Improving conditions in the US, and the news about stealth intervention by the Japanese authorities, allow for more upside moves. It’s important to remember that this pair moves slowly.

Further reading: