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USD/JPY was on the back foot following another stock market fall and some dollar correction. Will it break the 100 line? Capital Spending  and Average Cash Earnings  are the major events this week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Last week Bank of Japan  Governor Haruhiko Kuroda said the central bank will try to stabilize bond market volatility applying strong downward pressure on long-term yields. Furthermore the quantitative easing will continue to increase as the BOJ purchases more government debt. Will these strong measures also help to improve capital spending? The drop of the Nikkei index hurt dollar/yen once again.

Updates:

USD/JPY  daily chart with support and resistance lines on it. Click to enlarge:USD JPY Technical Analysis June 3 7 2013 forex trading currencies fundamental outlook and sentiment

  1. Capital Spending: Sunday, 23:50. Business spending in the fourth quarter fell 8.7% on the year, following a 2.2% gain in the previous quarter. Prime Minister Shinzo Abe is looking to increase businesses spending in order to turn the recent improvement in the economy to a real and sustainable recovery. He aims to remove obstacles standing in the way of capital spending raise it by 10%, to around ¥70 trillion, in three years. Another decline of 5.5 is expected.
  2. Monetary Base: Monday, 23:50. Japan’s domestic currency in circulation edged up in April to a record of 23%, following 19.8% gain in the previous month. The climb was bigger than the 21.0% reading expected by analysts. The central bank aims to nearly double the monetary base over two years by increasing purchases of government debt to end 15 years of nagging deflation. A further increase of 24.3% is estimated.
  3. Average Cash Earnings: Tuesday, 1:30. Labor cash earnings in Japan dropped 0.6% on a yearly base, in March, better than the 1.2% expected, after a fall of 0.8% reported in February. A rise of 0.6% is anticipated.
  4. 10-y Bond Auction: Tuesday, 3:45. Japanese government bond prices climbed, after a 10-year sale proceeded smoothly in May. The Ministry of Finance offered 2.4 trillion yen of 10-year notes with a bonus of 0.600%. The notes sold at a lowest  price of 100.0, better than expectations, and drew bids of 3.71 times the amount offered, up from the previous sale’s bid-to-cover ratio of 3.22 times indicating the auction was solid and is expected to do well   since the BOJ is going to be constantly buying this sector.
  5. 30-y Bond Auction: Thursday, 3:45. The Ministry of Finance offered 500 billion yen ($4.91 billion) of 30-year  bonds, with a coupon of 1.8%. While some strategists recommended long yields, others believe the yield curve is likely to steepen and therefore recommend a neutral stance instead of buying at the 30-year sale.
  6. Leading Indicators: Friday, 5:00. The leading economic index dropped slightly to 97.6 in March from a revised 97.7 in the previous month. Analysts expected the index to rise to 97.7 from February’s originally reported 97.6. However, the coincident economic index, which measures the current  economic situation, edged up to 93.3 in March from 92.5 in the previous month. A rise to 98.8 is forecasted.

 

*All times are GMT.

 

USD/JPY  Technical Analysis

 

Dollar/ ¥ began the week with a rise above the 102 line (mentioned last week), before crashing. 100.66 held for some time, but the pair eventually fell even lower, to close at 100.44.

Live chart of USD/JPY:

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

108.60 capped the pair in 2008 and worked as support during 2006. 107.16 provided support in 2007 and later worked as resistance in 2008.

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

103.73  is the new multi-year high and is now the key line to a fresh upside move. 102.80 capped the pair in May 2013, and could work as the immediate pullback line.

The round number of 102 provided support for the pair towards the end of May 2013 and is minor resistance now.. The 101.44 line, which was the post crisis high seen in April 2009, is now critical support.

The crash low of 100.66 provides support before 100. The obvious number below is the very round number of  100  and would be closely watched on any drop.  98.90 capped the pair in June 2009 and serves as minor resistance.

A stronger line is the  97.80 line, which was a peak back in 2009 and was reached in April 2013. The pair stumbled below this line, which is getting weaker.  The round 97 line worked as important support in May 2013.

The March 2013 peak of 96.71 is the next line, which now switches to support.  95.88 provided a temporary stop on the way up and was also the swing low on a fall during April.  The round number of  95  is also watched by many and will remain critical support on a reversal.

I am bullish on USD/JPY

The correction of the dollar and the yen has been quite strong. Now that a new month begins, we could see the long term trend resume. The BOJ is deploying all measures to “calm the bond markets”, and in the US, it is becoming clear that QE tapering will happen this year, even though economic signs are mixed.

It is important to watch the 100 line – if this breaks, we could see a snowball effect. However, there are more chances that we will see a rise rather than a fall.

More about the yen:  Abenomics will accelerate Japan’s descent into financial crisis

Further reading: