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Dollar/yen is finally on the move. The pair surged higher and touched levels last seen in the summer. Will this continue? Adjusted Merchandise Trade Balance is the highlight of this week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Last week Japan’s economy  shrank by 0.6% in the fourth quarter amid floods in Thailand, the  strong yen and  global slowdown. The reading came out worse than the 0.3% drop predicted by analysts. This decline together with a first annual trade balance deficit in more than 30 years, conclude a tough year for Japan’s economy. Will Japan’s economy find a path to recovery in 2012?

Updates: Dollar/yen started the week a bit higher, but the better-than-expected trade deficit helped it drop back to the critical 79.50 line. USD/JPY crossed the 80 line. The pair continues marching forward. See how to trade the US  Existing Home Sales with USD/JPY. Dollar/yen is getting comfortable above 80 and is capped under 80.25. The Higher US yields also support the pair. US unemployment claims are awaited.

USD/JPY  daily chart with support and resistance lines on it. Click to enlarge:USD/JPY Chart February 20 24 2012

  1. Trade Balance: Sunday, 23:50. Japanese Merchandise  Trade Balance  for December increased its deficit to -567.6 billion yen after a revised reading of -534.2 billion yen in the previous month. The figure was below expectations of -384.9 billion yen. The total Merchandise  Trade Balance  for December showed a contraction of deficit to -205.1 billion yens however the annual trade deficit for 2011 came out negative for the first time in 31 years following March earthquake and tsunami. Deficit is expected to increase to 830 billion yen.
  2. All Industries Activity: Tuesday, 4:30. Japanese all industry activity dropped more than predicted in November falling 1.1%, after a 0.8% gaining October. On a yearly basis, all industry activity declined 1.3% after a 0.1% increase in October. A rise of 1.6% is predicted now.
  3. CSPI: Thursday, 23:50. December Corporate Services Price Index  increased 0.1%, on yearly bases, reaching 96.4 following the downwardly revised reading of-0.1 in November. Corporate service prices remained unchanged during the fourth quarter however declined 0.5%.in 2011. An increase of 0.1% is forecasted.

* All times are GMT

USD/JPY  Technical Analysis

$/yen confirmed the move above the 77.50 line (discussed last week). Afterwards, it began a surge. After 78.30 was conquered the pair continued higher and close very high – 79.50. The break above this line isn’t confirmed yet.

Technical lines from top to bottom

We start from a much higher point than last week. 82.20 was a stubborn peak in May 2012 and is now the highest line. 81.50 was a clear line of resistance that marked the big fall in the summer.

80.70 is a minor line than provided support for the pair in July.  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 now a battleground. 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. After it was broken, the rally intensified. It now switches to support. 77.50 is weaker now. 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 turn from bullish to neutral on USD/JPY.

The pair has many reasons to rise: improving conditions in the US once again, Japanese QE and a weak economy in Japan. Nevertheless, the pair made a very strong move and might consolidate. The yen still has a safe haven status, and this may be seen now as Greece gets closer to announcing bankruptcy.

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