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Dollar/yen  jumped on another intervention by the authorities. Will this succeed? Or fail like previous interventions?  Core Machinery Orders and Tertiary Industry Activity are the main events lined up.  Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Last week BOJ Governor Masaaki Shirakawa spoke about the necessity of world leaders to prevent EU debt crisis from generating another global recession and ensure market stability. Shirakawa was criticized in the meeting in Osaka for failing to lower the surging yen hindering Japan’s recovery. Will Japan succeed to depreciate the yen?

USD/JPY  daily chart with support and resistance lines on it. Click to enlarge:USD/JPY Chart  November 7 11 2011

  1. Leading Indicators: Monday, 5:00. The leading indicators index declined 0.8 points to103.8 in August. This was the first drop in 4 months. The previous reading reached 104.6. A drop to 96.3 is predicted.
  2. Bank Lending: Thursday 23:50. Japanese bank lending decreased by 0.3% following 0.5% drop in the preceding month. Economists expected 0.5% decrease. This was the 22nd straight month of annual declines.
  3. Economy Watchers Sentiment: Wednesday, 5:00.  Service sector confidence dropped again in September to 45.3 from47.3 in August when asked about their thoughts on existing and future economic conditions. The strong yen and global financial uncertainty were the main cause for this drop. A rise to 46.7 is forecasted.
  4. Core Machinery Orders: Wednesday, 23:50.Japan’s core machinery orders jumped  11.0% in September after dropping 8.2% in the previous month. Economists predicted a 4.7% increase. This rise indicates recovery is underway. A drop of -6.9% is expected now.
  5. Household Confidence: Thursday, 5:00. Consumer confidence improved in September reaching 38.6 from37.0 in August showing a positive trend. However the figures are still below the 50 point line indicating pessimism. A further improvement to 39.3 is expected.
  6. Prelim Machine Tool Orders: Thursday, 6:00. Following a rise on Core machinery orders, Prelim Machine Tool Orders edged up 20.3% in September after 15.3 leap in the previous month indicating recovery in the manufacturing sector.
  7. Tertiary Industry Activity: Thursday, 23:50. Japanese service sector index dropped a seasonally adjusted 0.2% in August following 0.3% drop in July. This reading was better than the 0.3% decrease predicted. Contraction occurred in retail sales, transportation and finance. A drop of -0.4% is forecasted.
  8. CGPI: Thursday, 23:50. Corporations selling prices for finished goods increased by 2.5% in September from a year earlier after 2.6% rise in the previous month indicating rising inflation.  Another increase of 2.3% is predicted.

*All times are GMT

USD/JPY  Technical Analysis

The intervention to strengthen the yen occurred very early in the week, sending the pair to 79.50. It then slid and dollar/yen found support at around 77.85 (mentioned last week) before closing at 78.23.

Technical lines from top to bottom

We start from a higher point this week: 81.50 was a tough line of resistance that marked the beginning of a collapse in June. 80.25 is a minor resistance line after working as support at the same period of time. It is followed by the round number of 80, which provided strong support.

79.50, the peak after the intervention, is an update of the 79.30 line that proved to be a stubborn cap for dollar/yen, holding down recovery attempts. .  78.50 capped a second recovery attempt in November, after the intervention and had an important role earlier as well.

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. 77.50 has a stronger role  recently, after capping fresh attempts to move higher once again during October.

The round number of    77, remains a significant cap for the range trading that characterizes the pair even although it’s weaker now.  Further below we have the swing record low of 76.25 which is still of importance after working well as resistance.

The fresh record low of 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 am bearish on USD/JPY.

After the BOJ finally intervened, the pair has room to fall down once again. In the longer run, the improvement in the US can send the pair higher, but the current turmoil in Europe will keep on pressure on the pair in the shorter run. The yen remains a safe haven currency.

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