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The Japanese yen enjoyed a good week, as USD/JPY broke below the 100 level and surrendered over 200 points. Will the yen continue to rally?  The upcoming week is  very quiet, with only two events on the schedule. The markets will be closed on Monday for a holiday. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.

The yen took advantage of a broadly weakened dollar last week. The US currency sagged after the  Federal  Reserve chair  Bernard Bernanke said that  monetary policy would remain accommodative for  the time being, so QE tapering appears to be on hold.  The yen also got some help as the BOJ sounded optimistic about the Japanese economy in its policy statement. Bernanke’s comments still undermine the dollar.

Updates:

  • USD/JPY began the week with a move higher, climbing above 100. The weak retail sales figures in the US sent it lower, but the pair is still struggling with this line.  
  • Technical analysis:  GBPJPY: Continues To Consolidate.
  • USD/JPY dropped under the 100 line once again. This has become a pivotal level.
  • Weak housing data in the US  and the  lack of news from Bernanke in the prepared testimony  pushed the dollar a bit lower. However, also a stronger Japanese stock market is in play, and the pair remains balanced at 99.30.
  • The BOJ released the minutes of its last policy meeting. The BOJ  did not alter its monetary policy, and  policymakers sounded more optimistic about the economy, noting a moderate recovery trend in the economy. The central bank  was pleased  by the increase in exports due to the weak yen and  improved manufacturing data,  although it noted that deflation still remained a problem.
  • Japanese All Industries Activity will be released on Friday.
  • USD/JPY has climbed back above the 100 level also thanks to a good jobless claims figure and a good Philly number from the US.
  • The pair maintains the 100 level ahead of the elections on Sunday. The elections could be a shot  in the Abenomics Arm

USD/JPY daily chart with support and resistance lines on it. Click to enlarge:   USD JPY Forecast July 15-19

  1. BOJ Monetary Policy Meeting Minutes: Tuesday, 23:50. The Bank of Japan continues to be in the spotlight this week, as it releases the minutes of its policy meeting last week. At the meeting, the BOJ left its monetary policy unchanged, but sounded cautiously optimistic about the Japanese economy, noting that it was “picking up speed”. Analysts will comb through the minutes, and this market-mover could impact on the movement of USD/JPY.
  2. All Industries Activity: Friday, 4:30. This business indicator tends to show sharp moves from month to month, but the markets have done a good job of producing accurate forecasts for the past two releases. The markets are expecting a strong improvement in the indicator, with an estimate of 1.3% for the July release. Will the indicator meet or beat this month’s prediction?

*All times are GMT.

USD/JPY Technical Analysis

USD/JPY  started the week at 101.49, and this also  marked the pair’s high point. The pair dropped sharply, touching a low of 98.24. USD/JPY then pushed back above the 99 line, closing at 99.19. This  leaves 98.90 (discussed last week) in place as a weak support level.

[do action=”tradingviews” pair=”USDJPY” interval=”60″/]
Technical lines from top to bottom

With the yen posting sharp gains, we begin at lower levels:

105.50 is above the round number of 105 and worked as resistance during 2008. It reverted to support later in the year, and is back providing strong resistance.  Below, 104.60 slowed the pair’s rise in early 2008.

103.50 provided support for the pair in July and September 2008 before reverting to a resistance line in October 2008. The line has  been quiet since then  but was briefly breached in mid-May of this year. Next,  102.80 capped the pair in May 2013.

101.44, which was the post-crisis high seen in April 2009, started the week as very weak resistance, but is stronger with the yen rising sharply and trading near the 99 line. 100.85 failed to hold and has reverted to a resistance role.

USD/JPY crashed through the 100 level in mid-week, and this significant number is now providing weak resistance. It has been busy in July and could see more action this week.

USD/JPY continues to receive support at 98.90. This line was breached as the pair moved sharply lower, but remained in place at the end of the week. It is a weak line and could fall if the yen  picks up  where it left off at the end of the week and continues to move higher.

97.80  was  quite busy  in June, and continues in a support role. Given the volatility that we are seeing from the pair,  this line  cannot be considered safe.

The March 2013 peak of 96.71  is providing support.  This is followed by the round number of 95, which was last tested in mid-June.

The final line for now is 93.79.  This marked the low point of  a rally  by the dollar which started in mid-June and saw the  pair climb to the mid-101 range earlier  this month.

I  am  neutral on USD/JPY

The dollar was broadly weaker after the FOMC minutes and Bernanke’s dovish comments, but some strong economic numbers out of the US could bolster the dollar. Japan has been posting some better numbers lately, but with only a couple of releases this week, the pair’s direction could well depend on this week’s US releases.

Further reading: