USD/JPY made a big leap and reached high levels, as Japan is going to elections on December 16th. Japan‘s rate decision and BOJ press conference are the highlights of this week. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.
Note that the Mid East violence is slowing the move of USD/JPY due to safe haven flows into the yen. Last week Japan’s gross domestic product declined more than predicted, down 0.9% in the third quarter of 2012, following 0.2% increase in the second quarter. Meanwhile, the service sector beat analysts’ estimates by rising 0.3% following the same increase a month ago. Analysts expected a flat reading. Is there room for careful optimism in Japan?
*All times are GMT.
USD/JPY Technical Analysis
$/yen began the week with slow range trading under the 79.70 line (mentioned last week). It then made an initial push higher. A second move already took it above 80.60, and the pair stopped only around 81.43 before sliding a bit.
Technical lines from top to bottom
85.50 is a high peak seen back in early 2011. 84.20 is a more recent swing high, seen in early 2012.
It is followed by 83.34 which capped the pair in April and also beforehand. 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, and is the level of the “shoulders” in the upwards thrust seen at the time. 81.43 is stronger after serving as resistance for a recovery attempt back in 2011, and capped a move higher in November 2011.
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. 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.
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.
Steep Uptrend Regained
Since mid-October, USD/JPY is trading in an upwards channel, with uptrend resistance being more significant than support. The pair broke down below this level and then managed to recapture this line.
I am bullish on USD/JPY.
USD/JPY always had reasons to rise, and this is beginning to materialize now. The pair did take its time in some consolidation, and can now make the next move higher, building on a dovish BOJ decision. In the US, data is distorted due to Sandy, and as long as no big headlines come out of Capitol Hill regarding the cliff, the focus will remain on the yen.