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Dollar/yen  has now fully returned to the previous range before the intervention, as global worries continue sending money to Japan’s safe have currency.  Trade balance and inflation data are the main events this week.  Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Last week preliminary GDP grew by 1.5%, in line with predictions, after three quarters of decline. The major improvement was thanks to the rapid mending of production capacity after the Great East Japan Earthquake.  The Overnight call rate and monetary policy statement were also announces last week but no major changes were made by  the BOJ members. Let’s see what this week will bring.

Updates: Japan’s had a trade balance deficit – a rare event. See how to trade the US Existing Home Sales with USD/JPY. The pair manages to trade higher: the unexpected  disappointment  with US GDP strengthened the dollar on risk aversion, and is surprisingly helping the dollar also against the yen. Risks to global growth also come from Japan’s big neighbor: China’s manufacturing has gone into contraction zone once again, according to HSBC. USD/JPY remains stable at around 77. Dollar/yen made an unexpected move higher and temporarily crossed the 77.50 line, but it fell back and found support at 77. The failed German bond auction helps the greenback across the board.

USD/JPY  daily chart with support and resistance lines on it. Click to enlarge:USD/JPY Chart November 21 25 2011

  1. Monetary Policy Meeting Minutes: Sunday, 23:50. The last monetary policy of the BOJ reveals that bank officials cautioned about the market’s instability and revealed their concerns over the European debt crisis. All eyes will be turned overseas to try and learn about potential hazards to Japan’s fragile economy. The members also agreed to continue monetary easing measures.
  2. Trade Balance: Sunday, 23:50. Japan’s adjusted merchandise trade  deficit  decreased to  21.8 billion yen in September following   a 294.4 billion yen  deficit in August revised to -265.2 billion yen.  However Japan’s merchandise trade balance  recorded a surplus of  300.4 billion yen in September after a deficit of 775.3 billion yen in August. Deficit is expected to increase to 200 billion yen.
  3. All Industries Activity: Monday, 4:30. Japan’s all industry activity dropped for the first time since March by 0.5% in July after 0.4% gain in June. Economists expected a smaller decrease of 0.2%. A further decline of -0.9% is forecasted now.
  4. Tokyo Core CPI: Thursday, 23:30. Core consumer prices in Tokyo dropped 0.4% percent in October from a year earlier in line with predictions after sliding 0.1% in the previous month. Meanwhile the National Core CPI                       increased by 0.2% in September from a year earlier in line with predictions. Tokyo Core CPI is predicted to drop by 0.3% while the national core CPI is expected to decrease by -0.1%
  5. CSPI  : Thursday, 23:50. Corporate service prices dropped 0.1% on a yearly base in September following 0.3% decrease in the prior month. The increase occurred in transportation, advertising, communications and rental. NO change is predicted this month.

*All times are GMT

USD/JPY  Technical Analysis

Dollar/yen returned to choppy trading and eventually closed under the 77 line.

Technical lines from top to bottom

The round 80, which provided strong support, is our first line this time.  79.50, is the next line of resistance. This is the line that was reached after the recent intervention.

78.50 capped a second recovery attempt in November, after the intervention and had an important role earlier as well, working as support.

77.85 was tough resistance when the pair made an attempt to make an upwards move higher in September, and cushioned the drop of USD/JPY after the intervention. It is a distinct line separating ranges. 77.50 has a stronger role  recently, after capping fresh attempts to move higher once again during October. It turned into support after the intervention and is now resistance once again. It is also very distinct.

The round number of    77, remains a significant cap for the range trading that characterizes the pair and proved to be stronger now.  Further below we have the swing record low of 76.25 which is still of importance after working well as resistance.

A previous low of 75.95 is minor support. The fresh record low of 75.57 where the BOJ intervened is the final frontier in charted territory for now.  Below, the round number of 75 is the next potential cushion and an area where the Japanese authorities will be keen to intervene.

I remain neutral on USD/JPY.

With a recovering economy and safe haven flows, the yen has room for more gains. But on the other hand, it already reached levels where the central bank could act once again. Choppy trading is likely back with this frustrating pair.

Further reading:

For a broad view of all the week’s major events worldwide, read the  USD outlook.

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