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USD/JPY made its way up for a change, as global tensions eased and demand for the “safe” yen diminished. Japan’s rate decision and the accompanying press conference are the main events this week. Will European worries send new flows to the Japanese currency? Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Lower European worries joined the lower chances for more dollar printing in the US, and also pushed the pair higher. Japan’s current account surplus shrank unexpectedly in April to 0.29T from 0.79T in March, while economists expected a smaller drop to 0.65T. This decline was affected by the slowdown in China but a gradual ongoing dwindling in Japan’s current account surplus, could be traced back to the earthquake in March 2011, where nuclear reactors shutdown compelled Japan to import expensive energy products.

Updates: The BSI Manufacturing Index disappointed, coming in at -5.7 points. The market estimate stood at -2.4. M2 Money Stock posted a reading of 2.1%, below the market forecast of 2.5%. Household Confidence recorded a reading of 40.7 points,  slightly better than  the estimate of 39.9. Prelim Machine Tool Orders declined by 2.9%, a three-month low. USD/JPY is steady, and was trading at 79.41. Tertiary Industry Activity posted a weak reading of -0.3%. The estimate stood at 0.4%. CGPI came in at -0.5%, below the market forecast of -0.3%. BOJ Governor Shirakawa  delivered a speech  to the San Franciso Federal Reserve Conference. USD/JPY continues to trade in a narrow range. The pair was trading at 79.51. Core Machinery Orders looked very sharp, increasing by 5.7%. This was the best performance since January, and easily exceeded the market estimate of 2.0%.  USD/JPY  was trading at 0.7965.  Revised Industrial Production dropped sharply, declining by 0.2%. This was in contrast to the  previous reading, which  was a strong 1.3%. The BOJ will announce its benchmark interest rate on Friday. No change is expected from the current rate of 0-0.10%. The yen was up, as USD/JPY was trading at 0.7926.

USD/JPY  daily chart with support and resistance lines on it. Click to enlarge:  USD/JPY Chart June 11 15 2012

  1. BSI Manufacturing Index: Sunday, 23:50. Large manufacturers’ sentiment dropped to-7.3 in the first quarter, contrary to prediction of a 1.3 gain. However sentiment is expected to improve in the second quarter in light of yen depreciation and increased reconstruction activity.  Large manufacturing index is expected to improve to -2.4.
  2. Household Confidence: Monday, 5:00. Consumer sentiment dropped in March to 40.0 from40.3 in February, amid rising gasoline prices. However despite the rise in gas prices, respondents are still optimistic in regard to employment data. A slight decline to 39.9 is predicted now.
  3. Prelim Machine Tool Orders  : Monday, 6:00. Machine tool orders increased 0.5% on a yearly base, in April, marking the second straight monthly expansion. The prior month score increased by 2.4%. Domestic demand strengthened unlike foreign demand.
  4. Tertiary Industry Activity: Monday, 23:50.Japan’s service sector activity decreased in March by 0.6% following a flat reading in February. The drop was worse than the 0.3% decline predicted by analysts.   The main slowdown occurred in information and communications, living-related and amusement services, wholesale and retail trade and accommodations. A rise of 0.4% is anticipated this time.
  5. Core Machinery Orders: Tuesday, 23:50. Japan’s core machinery orders dropped less than predicted in Match declining 2.8% after a 2.8% gain in the previous month. Economists expected a 3.4% drop. A government forecast expects a rise of 2.5% year-on-year in April. A climb of 1.9% is expected now.
  6. Revised Industrial Production: Thursday, 4:30. Japan’s industrial output climbed 1.3% in March, amid a recovery in overseas demand and reconstruction projects following the earthquake and tsunami in  Japan  boosting production inJapan. Economists expected a 1.1% gain following the 1.6% leap in the previous month. Another increase of 0.2% is expected now.
  7. OPEC Meetings: Thursday. OPEC meetings are held in Vienna attended by delegates from 13 oil-rich nations deciding how much oil they will produce. In the next meeting on June 14 OPEC will elect a Secretary-General.Iran declared they will announce their candidate for this position.
  8. Rate decision: Friday. The  Bank of Japan  maintained its monetary policy in its last meeting, but warned of continuing downside risks to the country’s recovery prospects, such as the debt crisis in Europe and a slowdown inChina’s economic growth. The BOJ did not mention granting further monetary easing, keeping the size of its asset buying program unchanged at ¥40 trillion and maintaining its policy rate at a range of zero to 0.1%. No change is expected now.

* All times are GMT

USD/JPY  Technical Analysis

$/yen started the week below the 78.30 line (mentioned last week), before it began rising. The pair temporariliy crossed 79.60, but couldn’t hold on and finished at 79.47.

Technical lines from top to bottom

81.43 is stronger after serving as resistance for a recovery attempt. 80.60 provided support for the pair around the same time, and served as a bouncing spot for the next moves.

80.20 separated ranges in May 2012 and remains another barrier after 80 on the upside. The round number of 80 is psychologically important, even though it was crossed several times in recent months.

79.60 was a double bottom in May 2012 and proved to very tough resistance. The round number of 79 served as a bottom in May 2012 but is now weaker after the fall.

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 a key line after the fall.

77.50 was the bottom border of a range the pair had at the end of 2011. It is followed by 77, which is only minor support.

76.60 was a cushion for the pair at the beginning of the year and is rather strong. 76.26 is the next line on the downside after working as a support quite some time ago.

75.95 was an all time low and was the catapult for the pair’s rally during 2012. The current all-time low of 75.57 is the last line for now.

I am neutral on  USD/JPY.

Europe has a good chance of enjoying relative stability until the Greek elections. Adding the lack of QE, at least for now and the Japanese will to weaken the local currency, there are better chances that the yen will fall.

Another note: USD/JPY continues to justify its title as the  most predictable currency pair for Q2.

Further reading: