USD/JPY Outlook October 22-26

USD/JPY finally made a big move, and tackled uptrend resistance, as the global mood slightly improved. Trade Balance and Tokyo Core CPI are the major events this week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

BOJ governor Masaaki Shirakawa is under rising pressure to act more fiercely to lower the value of the Japanese yen. Pressure comes from exporters and from politicians as Japan faces elections. In addition, the potential acquisition of Sprint by Japan’s Softbank also boosts USD/JPY.

Updates: Japan’s trade deficit ballooned in September, widening to 0.98 trillion yen. This was much higher than the market forecast of 0.74T. BOJ Governor Masaaki Shirakawa spoke at a banking conference in Tokyo. USD/JPY is steady, and was trading at 79.85. CSPI dropped to a seven-month low, as the consumer inflation index declined 0.5%. Tokyo Core CPI and National Core CPI will be released later on Thursday. The yen is weakening, and has crossed the important 80 level. USD/JPY was trading at 80.18.

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

1. Trade Balance: Sunday, 23:50. August adjusted merchandise trade deficit increased to Y472.8 billion  amid a 2.1% drop in exports and a 7.1% yearly decline. Imports also declined 0.2% down 3.5% on the year. Meantime the unadjusted trade balance deficit reached Y754.1 billion from a Y-517.4  B reading in the preceding month. The increasing trade deficit indicates global slowdown is taking its toll onJapan’s exporters. Deficit is expected to increase to Y740 billion this time.
2.  CSPI  : Wednesday, 23:50. Japan’s corporate service price index dropped 0.3% on year in August following a revised 0.3% decline in the previous month. The reading was below expectations, marking the third straight yearly drop, amid lower service prices. CSPI posted a record drop of -3.8% in August 2009 but improved since then, to modest declines. Corporate service price index is predicted to decline 0.4%.
3. Tokyo Core CPI: Thursday, 23:30.Tokyo core CPI excluding fresh food, dropped 0.4% in September from 0.5% decline in August, while economists expected a 0.2% drop. Meanwhile Japan’s national core consumer prices declined 0.3% in August from a similar reading in July. The BOJ stated that the CPI is expected to stay flat for the time being since the economy is in a standstill situation. Tokyo core CPI  is forecasted to drop 0.5% while national core consumer prices  are expected to decline 0.2%.

*All times are GMT.

USD/JPY  Technical Analysis

$/yen began the week with a small rise, and was capped by the 79.05 line (mentioned last week). After breaking above this line, the pair didn’t look back. Note how the channel played a role in containing the pair. It can be seen in the hourly chart below:

Technical lines from top to bottom

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.

81.43 is stronger after serving as resistance for a recovery attempt. 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.

80.20 separated ranges in May 2012 and remains another barrier after 80 on the upside.  The round number of 80 is psychologically important, even though it was crossed several times in recent months. It is stronger now.

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. 79.05 capped the pair in September 2012 and similar levels were seen in the past. Despite being temporarily overrun, the line still matters.

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.

76.60 was a cushion for the pair at the beginning of the year and is rather strong. 76.26 is the next line on the downside after working as a support quite some time ago.

Uptrend Channel

Uptrend support accompanies the pair since the end of September, and uptrend resistance began one week later. The pair trades nicely within the channel, and an attempt to break higher didn’t succeed.

I remain bullish on  USD/JPY.

It seems that after a long time when the threats didn’t work, something begins to move. The BOJ intervened at the end of October 2011, and we might be seeing some market participants front running this event now. Mediocre US data will keeps gains limited.