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USD/JPY  did not show much movement over the week, posting modest losses. The pair did drop close to the 104 line on Friday, but then bounced higher, closing the week at 104.85. The upcoming week has just three releases.  Here is an outlook on the major market-movers and an updated technical analysis for USD/JPY.

It was a very quiet week in Japan, with the markets on holidays for most of the week and no Japanese releases. In the US, Unemployment Claims looked sharp for the second straight week and the Fed starts tapering QE in January.

USD/JPY daily chart with support and resistance lines on it. Click to enlarge:     USD JPY Forecast Jan. 6-Jan.10

 

  1. Monetary Base: Monday, 23:50. As part of Japan’s aggressive monetary policy, Monetary Base continues to increase. The November reading jumped to 52.5%, up from 45.8% the previous month. The estimate stood at 47.2%. The upward trend is expected to continue, with the estimate standing at 55.2%.
  2. 10-year Bond Auction: Tuesday, 3:45. The average yield on 10-year bonds has shown modest movement in recent releases, with the previous release coming in at 0.65%. The markets are not expecting any dramatic movement in upcoming release.
  3. Leading Indicators: Friday, 5:00. This index is based on 11 economic indicators, but has a minor impact on USD/JPY since most of the data has already been previously released. The  indicator has been very steady, with the past two reading coming in just below the 110% level. The markets are expecting a slight increase for the December reading, with an estimate of 110.9%.

 

USD/JPY Technical Analysis

USD/JPY started the week at 105.30. The pair  climbed  to a high of 105.44  before reversing directions and dropping to a  low of 104.08, as support at 104.00 (discussed last week) remained intact.  The  pair  rebounded and closed the week at 104.85.
Live chart of USD/JPY: [do action=”tradingviews” pair=”USDJPY” interval=”60″/]
Technical lines from top to bottom

We begin with resistance at the round number of 110.00. This key level has remained intact since August 2008. This is followed by a resistance line at 109.18.

Next is 108.38. This line has remained intact since September 2008. At that time, USD/JPY was in a downward spiral which saw it drop below the 0.90 line.

106.66 has  held firm since November 2008.   This is followed by resistance at 105.70. This line  started the week as weak resistance,  but held on and has some breathing room as the pair trades below the 105 line.

We find the first support level for the pair  at the round number of 104. This was a key line back in May 2008. This line held firm as the pair dropped sharply on Friday below bouncing higher.

102.50  continues to provide strong support. It marked the bottom of a dollar rally which started in early December, which has seen the yen climb above the 105 line.

101.44 was the post-crisis high seen in April 2009, and continues to provide strong support.

100.85 saw activity in July as the dollar showed strength against the yen. It is protecting the key level of 100.

The round number of 100 is  a key psychological level. It is providing USD/JPY with steady support.

The final support level for now is at 98.80. It has remained firm since early November, when the pair began the present rally which has seen the yen tumble to five-year lows.

 

I am  bullish on USD/JPY

The Fed has finally started the long-awaited QE taper, which is dollar-positive. Further scaling down by the Fed is expected early in 2014, so the yen could  remain under strong pressure.  As well, the Bank of Japan has indicated it will continue its current aggressive monetary program, which could lead to further weakening of the Japanese currency. The yen crashed in 2013, losing about 17% of its value and enters 2014 vulnerable to further declines.