Dollar/yen reached 8 month highs, but could not sustain all the gains, as the yen eventually enjoyed some safe haven flows due to fiscal cliff issues. Household Spending, Tokyo Core CPI and Retail Sales are the main events on our calendar. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.
Last week The conservative Liberal Democratic Party has returned to power. Prime Minister Yoshiko Noda resigned after the elections calling the results a “disappointment.” The new Prime Minister Shinzo Abe, is set to enact an extra loose monetary policy to boost the economy and work towards renewing good relationships with China. Will he succeed to improve economic activity in Japan? In the US, the collapse of fiscal cliff talks and Plan B dampened the global mood and sent the dollar higher and the yen even higher.
*All times are GMT.
USD/JPY Technical Analysis
$/¥ started the week with a leap following the elections, but could not breach the 84.20 line (mentionedlast week) at first. It then continued higher, reached 84.50 before retreating.
Technical lines from top to bottom
86.27, which served as resistance, also in 2010, is the high point we start at. 85.50 is a high peak seen back in early 2011.
84.20 is a more recent swing high, seen in early 2012. This is now critical resistance for any move forward.An initial move above this line in December 2012 turned into a false break. It is followed by 83.34 which capped the pair in April and also beforehand. It switched to support after the surge in December.
82.87 is a veteran line – that’s where the BOJ intervened for the first time back in 2010. The line also capped the pair during November and December 2012.
81.80 capped the pair in April, and is the level of the “shoulders” in the upwards thrust seen at the time. It worked perfectly well as support in December 2012. 81.43 is stronger after serving as resistance for a recovery attempt back in 2011, and capped a move higher in November 2011.
80.70 worked as resistance back in June and in a stronger manner in October. 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.
Channel Remains Very Relevant
As the chart shows in the black lines, the pair is trading in an uptrend channel since early October. While it broke above the channel at one stage,and recently once again, it returned back to the channel.
Another Recent Technical View: Forex Analysis: USD/JPY Advance Stalls around Key Resistance - by James Chen.
I remain bullish on USD/JPY.
The new Japanese government will begin working this week, and at least at first, they are expected to stick to promises, thus adding more pressure on the yen. In addition, there is a good chance that the recentblame game in the US cliff talks could just be a last minute battle before a deal is made. A deal would weaken the yen