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Dollar/yen fell in range as hopes for QE3 hurt the dollar across the board. Capital Spending, Average Cash Earnings and Masaaki Shirakawa’s speech are the main market-movers this week. Here’s an  outlook  for the Japanese events and an updated technical analysis for  USD/JPY.

Last week, Japan’s consumer spending was better than expected in July rising 1.7% following a 1.6% increase in June with a steady unemployment rate. However inflation rate continued to drop Core consumer prices in Tokyo the early inflation release fell 0.5% in August from a year earlier, slightly lower than the 0.6% drop predicted by analysts.

Updates: Monetary Base climbed 6.5%, but this was well below the market forecast of 9.4%. Average Cash Earnings were a major disappointment, declining by 1.4%. The market estimate stood at a much smaller drop of 0.3%. This was the sharpest drop for the employment indicator in over one year. The yen has edged downwards, as  USD/JPY  was trading at  78.44. The pair is rangebound, and was trading at 0.7838.  BOJ Governor Masaaki Shirakawa deliver a speech in Tokyo earlier on Thursday. The yen has edged downwards, as USD/JPY was trading at 78.48.

USD/JPY  daily chart with support and resistance lines on it. Click to enlarge:USD/JPY Forex Chart September 3 7 2012


  1. Capital Spending: Sunday, 23:50. Japanese companies increased their spending by 3.3% during the first quarter following a 7.6% climb in the fourth quarter of 2011 indicating a moderate recovery amid reconstruction work following last year’s earthquake. Domestic demand is solid unaffected by global markets pulling up corporate spending. A further increase of 8.7% is expected this time.
  2. Monetary Base: Monday, 23:50. The domestic currency in circulation edged up 8.6% in July compared to a year before, following 5.9% gain in June indicating increased economic activity in Japan’s domestic market. Banknotes in circulation were up 2.3 percent on year, while coins in circulation added an annual 0.2 percent. Seasonally adjusted, the monetary base climbed 32.4 percent on year to 122.775 trillion yen in July. That follows the 55.8 percent annual surge in the previous month. A further climb of 9.4% is expected now.
  3. Average Cash Earnings: Tuesday, 1:30 Japanese labor cash earnings dropped 0.6%, in June while expected to gain 0.1. Total cash earnings stood at 367,738 yen in July, down 0.1 percent from a year earlier, following a revised 0.7 percent decline in the previous month. Another 0.3% decline is predicted.
  4. Masaaki Shirakawa speaks: Thursday, 3:40. Masaaki Shirakawa BOJ governor will speak in Tokyo. His speech can cause volatility in the market and offer clues concerning the BOJ’s future monetary policy.
  5. Leading Indicators: Friday, 5:00. The leading indicators index dropped for the third time in June reaching a revised 93.2 points from 95.2 in May, the lowest level since May last 2011. Machinery orders, consumer confidence and interest rate spread were the only contributors. Another decline to 91.7 is forecasted.

* All times are GMT.

USD/JPY  Technical Analysis

$/yen traded under the 78.80 cap discussed last week. Towards the end, it fell even lower, but the moves were limited.

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. 79.10 was a cushion for the pair several times in June and also back in May 2012. It proved to be a very distinct separator during August.  Close by,

78.80 proved its strength as resistance in August 2012 again and again and is becoming stronger once again. The round number of 78 is now stronger support after being the bottom of the range.

77.50 was the bottom border of a range the pair had at the end of 2011. 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.

Steep Uptrend Support Broken

As shown on the chart, USD/JPY finished riding on uptrend support, and when this ended, the fall was clear to see.

I am bearish on  USD/JPY.

The yen enjoyed the relatively dovish analysis of Ben Bernanke’s speech. The upcoming week could see some kind of leg dragging in Europe that could boost the safe haven yen. It’s important to note that falls will likely be limited, even as trading volume rises.

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