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After one of the wildest weeks in the pair’s history, there are fresh events such asTrade Balance and Core CPI to rock the yen, as well as an ongoing intervention. Here is an outlook on the coming events and an updated technical analysis for USD/JPY.

Fears that the situation in Fukishima will turn into a horrific nuclear catastrophe sent the pair to the previous historic low of 79.75, and this triggered huge stop orders. A new record was set during this collapse. This was answered by the massive international effort to weaken the yen by the G-7. The efforts by the BOJ and other banks are expected to continue this week.

Bank of  Japan  Governor Masaaki Shirakawa declared the bank’s intention to continue its ultra-easy monetary policy following the Group of Seven agreement to collaborate and restrain rising yen. The BOJ intends to flood markets with more cash in order to keep market rates low. However the BOJ is yet to evaluate the full impact the deadly 9.0 magnitude earthquake and a subsequent yen surge could have on Japan’s economy.

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

Dollar Yen Chart 21-25

 

  1. All Industries Activity: Tuesday, 4:30. The  All  Industry  Activity  Index fell by 0.2% in December 2010 slightly below market expectations of a 0.1% gain, and follows a 0.1% decrease the previous month. A rise of 2.7% is forecasted now.
  2. Trade Balance: Wednesday, 23:50. Trade  Balance  surplus narrowed to  0.19T  following 0.58T in the prior month. Moody lowered Japan’s debt rating outlook from stable to negative as economic and fiscal policies were not proving strong enough to achieve the government’s deficit reduction target. Trade  Balance  surplus  is predicted to grow to 0.68T.
  3. Tokyo Core CPI  : Core consumer prices in Tokyo fell 0.4%   in February from a year earlier, after a 0.2%   decline in January, below the market forecast for a 0.3% drop. While Japan’s core consumer prices dropped 0.2% in January from a year earlier, the 23rd straight month drop however this is the smallest decline since April 2009 amid rising energy prices. This report followed by 0.4% decline in December. Core CPI is predicted to decrease by 0.3%.
  4. CSPI: Thursday, 23:50. Japan’s corporate service price index fell 1.1% in January from a year earlier posing the 28th consecutive year-on-year drop following 1.3% decline in December. Core CSPI excluding international transportation dropped 1.0% in January after falling 1.3% in December. The same fall of 1.1% is expected now.

*All times are GMT

USD/JPY Technical Analysis:

Dollar/Yen gradually deteriorated at the beginning of week and managed to hold above the 80.40 line (discussed last week). And then, after dropping to the 79.75 line, it fell off the cliff, reaching a new historic low of 76.25 before bouncing back. The intervention pushed it higher, but it couldn’t break above 81.80, and finally fell all the way to 80.58.

Looking down, immediate support is found at November’s lows of 80.40, which also worked in the past week. It’s followed by the 1995 low of 79.75 line that also capped the pair just before the intervention and is still of high importance.

Lower, in previously uncharted territory, 78.27 proved to be an important cushion for further falls. 76.25 is the last line, being the new all time low.

Looking up, initial yet week resistance is found at 80.90, which provided support in the past. It’s followed by 81.80, which is already a very strong line that showed its strength just now.

Above, we find 82.87  – it was the point were the BOJ intervened back in September 2010 and will also be watched now as the international push continues.  Higher, 83.40 provides more resistance, though weaker than earlier. Dollar/yen failed to reach this area before the earthquake.

Further above, 84 provides more resistance after capping an attempt to rise a few weeks ago.  Higher above is 84.50 which is the highest level since October and is a very tough resistance line.

The last line for now is 85.93, which was the top that the pair made after the BOJ intervention in September.

I remain bullish on USD/JPY.

The Japanese economy wasn’t doing well before the earthquake and will now struggle to recover. The US economy is doing better. In addition, this intervention has a better chance to succeed as it’s a coordinated effort and it is unsterilized – meaning that money isn’t drained from the markets in order to balance the yen selling.

Further recommended reading about the yen:

  • The Yen Undercurrents – Simon Smith compares the previous major earthquake’s impact on the yen with this one.
  • Adam Kritzer provides a comprehensive analysis of the yen’s wild ride.
  • Kathy Lien explains how the unsterilized intervention has a better chance to succeed.

Further reading on Forex Crunch: