USD/JPY Outlook February 18-22

Dollar/yen took a break from rises towards the G-20 meeting, but when it became clear that Japan will not be touched, the pair advanced. Will we now see an assault on 95? Monetary Policy Meeting Minutes and Trade balance are the major events this week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Last week, Japan has been spared by the G-20 statement not being rebuked by the majority of nations for its aggressive monetary policy and its explicit intent to lower the yen’s value despite complaints  of various officials. Will the BOJ continue its tactic in light of the growing discontent? The Japanese government is expected to present the candidate for the new BOJ governor.  

Updates: The BOJ released its Monetary Policy Meeting Minutes. Two board members, Takehiro Sato and Takahide Kiuchi, opposed doubling the BOJ’s inflation target to 2 percent,  arguing it would do little to boost inflation in Japan. The Trade Deficit narrowed to 0.68 trillion yen, but this was well above the estimate of 0.59 trillion. All Industries Activity rebounded sharply, jumping 1.8%. The estimate stood at 1.6%. USD/JPY was trading at 93.17.

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

1. Monetary Policy Meeting Minutes: Monday, 23:50. The  Bank of Japan  releases an elaborate study of economic activities in Japan following the Monetary Policy meeting. Any changes in this report tend to cause volatility to the yen. The current monetary policy will include the new Prime Minister Shinzo Abe’s view of  a more aggressive monetary to tackle deflationary problems.
2. Trade Balance: Tuesday, 23:50. December seasonally adjusted was Y641.5 billion – more than the Y535.1 billion predicted by analysts. Exports declined a more than expected by 5.8% from a year earlier above expectations of a 4.3% drop. Imports climbed a greater than expected by 1.9%. On a seasonally adjusted basis, the trade deficit reached Y800.7 billion. The seasonally adjusted balance has been negative since March 2011. Seasonally adjusted trade deficit is expected to improve to Y590 billion.
3. All Industries Activity: Wednesday, 4:30. The All Industries Activity Index measuring overall production by all sectors of the Japanese economy dropped 0.3% in November, in line with predictions and following a 0.2% gain in October.  A gain of 1.6% is expected now.

*All times are GMT.

USD/JPY  Technical Analysis

$/ ¥ started the week with a surge higher and reached a peak at 94.46. From there, the pair fell lower and traded in a range between the 92.88 and the 93.75 lines (mentioned  last week). Another drop already sent it to support at 92.12.

High in the sky, we find the 97.80 line, which was a peak back in 2009. This is a high level that could be targeted if 95 is breached. Before that, we have 96.90, which was a swing high in July 2009.

A very important line is 94.70 – which capped the pair for long months in early 2010. The February 2013 peak of 94.40 should be noted.

93.75 is the swing high of January 2010 and is minor resistance.  92.88 was a peak in June 2010 and is the immediate peak for the pair.

92.12 was a peak in the past, and provides some support, as seen in February 2013.  91.20, which capped the pair very temporarily on its way up in January 2013, is a support line before the round figure of 90.

The ultimate support line for now is 90 – a target marked by many analysts and a round number. This line remains close after the break.  Just below, 89.67 capped the pair for several days in January 2013 and is now minor support.

Below, 89.10 was a peak in the summer of 2010, before the pair began descending and is now support.  88.40 is the peak of January 2013 and is a strong support line.

Even lower, 87.60 provided support on a pullback when the pair traded higher in January, after previously working as resistance.

Another Recent Technical View:  —  USD/JPY Consolidates within Steep and Sustained Bullish Trend  –  by James Chen

I turn from bearish to bullish on USD/JPY

After the  talk-fest of the G-20  is over, Japan has less motivation to curb the drop in the yen. The government’s policy is not expected to change. A candidate for the BOJ will likely be announced this week. Even if the candidate isn’t as radical as Abe wants, he is likely to comply with the new policy. With  more good US figures, an assault on 95 cannot be ruled out.