USD/JPY made a big leap and reached high levels, as Japan is going to elections on December 16th. Japan‘s rate decision and BOJ press conference are the highlights of this week. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.
Note that the Mid East violence is slowing the move of USD/JPY due to safe haven flows into the yen. Last week Japan’s gross domestic product declined more than predicted, down 0.9% in the third quarter of 2012, following 0.2% increase in the second quarter. Meanwhile, the service sector beat analysts’ estimates by rising 0.3% following the same increase a month ago. Analysts expected a flat reading. Is there room for careful optimism in Japan?
Updates: At its policy meeting, the BOJ unanimously decided to maintain interest rate and asset purchase levels. Interest rates will stay below 0.10%, and asset purchase size remains at 66 trillion yen, while credit lending stays at 25T. BOJ Governor Masaaki Shirakawa held a press conference at which he discussed the central bank’s decision. All Industries Activity declined by 0.3%, a notch better than the -0.4% estimate. The yen has lost ground, as USD/JPY was trading at 81.52. Trade Balance improved in October, but was still higher than the estimate. The indicator posted a deficit of 0.62 trillion yen, while the estimate was a deficit of 0.46T. The BOJ stated in its monthly economic report that it expects the economy to remain “relatively weak for the time being.” It noted that domestic industrial output in Q1 would likely be unchanged from the Q4 release in 2011. USD/JPY has edged downwards, as the pair was trading at 82.58.
- Japan‘s Rate decision and BOC Press conference: Tuesday. The Bank of Japan decided by a unanimous vote to expand its asset purchase program by 11 trillion yen to boost its economy. The purchases will be finalized by the end of 2013. No change in rates is expected.
- All Industries Activity: Tuesday, 4:30.Japan’s all industries activity index increased modestly in September, rising 0.1% following a 0.6% decline in August. Analysts expected a 0.2% increase. Earlier that month, the Bank of Japan lowered its forecast on its economic activity. The slowdown global markets, extended longer than expected, badly affecting manufacturers’ exports. A drop of 0.4% is expected.
- Trade Balance: Tuesday, 23:50.Japan’s trade balance deficit increased to a seasonally adjusted -0.98T, from an upwardly revised -0.46T in the preceding month. Analysts forecasted the trade balance to reach -0.74T. Deficit is expected to contract to -0.49T.
- BOJ Monthly Report: Wednesday, 5:00. In its October report The Bank of Japan said that industrial production is expected to increase in the fourth quarter, but warned that the global slowdown will keep it modest. Production of electronic parts and devices in the IT-related sector are expected to increase, but exports and industrial production are expected to remain sluggish for the time being and increase moderately in correlation with global market’s slowdown. That’s it for the major events this week. Stay tuned for coverage on specific currencies
*All times are GMT.
USD/JPY Technical Analysis
$/yen began the week with slow range trading under the 79.70 line (mentioned last week). It then made an initial push higher. A second move already took it above 80.60, and the pair stopped only around 81.43 before sliding a bit.
Technical lines from top to bottom
85.50 is a high peak seen back in early 2011. 84.20 is a more recent swing high, seen in early 2012.
It is followed by 83.34 which capped the pair in April and also beforehand. 82.87 is a veteran line – that’s where the BOJ intervened for the first time back in 2010.
81.80 capped the pair in April, and is the level of the “shoulders” in the upwards thrust seen at the time. 81.43 is stronger after serving as resistance for a recovery attempt back in 2011, and capped a move higher in November 2011.
80.60 provided support for the pair around the same time, and served as a bouncing spot for the next moves. It proved its strength as resistance in June 2012, more than once. It turns into support now. The round number of 80 is psychologically important, even though it was crossed several times in recent months.
79.70 was a cap was seen in June 2012. It proved its strength as resistance once again in July 2012 and proved critical before the downfall in August 2012. It strengthens again after capping the pair during November 2012.. 79.05 capped the pair in September 2012 and similar levels were seen in the past. Despite being temporarily overrun, the line still matters, especially after working as support in November 2012.
78.80 proved its strength as resistance in August 2012 again and again. The last attempt at the beginning of October should monitored. The round number of 78 is now stronger support after being the bottom of the range and is becoming stronger after working as a cushion also in September 2012.
77.40 was the extended low line in September 2012, until the pair rebounded. It is followed by 77, which is only minor support.
Steep Uptrend Regained
Since mid-October, USD/JPY is trading in an upwards channel, with uptrend resistance being more significant than support. The pair broke down below this level and then managed to recapture this line.
I am bullish on USD/JPY.
USD/JPY always had reasons to rise, and this is beginning to materialize now. The pair did take its time in some consolidation, and can now make the next move higher, building on a dovish BOJ decision. In the US, data is distorted due to Sandy, and as long as no big headlines come out of Capitol Hill regarding the cliff, the focus will remain on the yen.
- For a broad view of all the week’s major events worldwide, read the USD outlook.
- For EUR/USD, check out the Euro to Dollar forecast.
- For GBP/USD (cable), look into the British Pound forecast.
- For the Australian dollar (Aussie), check out the AUD to USD forecast.
- For USD/CAD (loonie), check out the Canadian dollar forecast