The USD/JPY is drifting back beneath the highly psychological 90 level after being deflected by our 2nd tier downtrend line. We cautioned investors not to become overly optimistic concerning Friday's rally due to the strength of these two technical barriers. Friday's bounce was based off of broad-based oversold conditions for the Dollar and weaker than expected Core Machinery Orders data. The light data gave investors a reason to unload some Yen and value the USD/JPY based on comparative economic fundamentals rather than policy uncertainties and broad Dollar trends. However, the USD/JPY's long-term downtrend is clearly in the driver's seat, and we will need much more convincing topside movements to alter out outlook. The USD/JPY should continue to participate with incessant deflation of the Greenback.
Meanwhile, all eyes will be on BoJ tonight EST since the central bank will be announcing its first monetary policy decision under the leadership of Minister Fujii. There has been much uncertainty and speculation swirling around Fujii's monetary stance and the impact of the DPJ's fiscal policy on the Yen. Although Fujii attempted to recant his indifference towards a stronger Yen, we have little reason to believe the BoJ will intervene unless the Yen were to appreciate to uncomfortable levels is a short period of time. What these levels are naturally remain to be seen, though we believe a failure of 2009 lows would raise a red flag. Even though investors are anticipating that the BoJ will announce the official expiration of its corporate bond purchase program by the end of the year, the more important element of the meeting will be any reference regarding the BoJ's attitude towards a stronger Yen. Further indifference and uncertainty from Minister Fujii could deliver another psychological blow to a beleaguered USD/JPY.
In addition to tonight's BoJ meeting, investors will be digesting the flood of Q3 earnings and key U.S. econ data, including Retail Sales and Core CPI. Outperformance of earnings and econ data would likely result in further equity strength combined with Dollar weakness. The USD/JPY's trend is very much attuned to investor opinion regarding the overall health of the Dollar. Therefore, we expect current correlations and trends to remain intact until further notice. Technically speaking, our multiple downtrend lines and the highly psychological 90 zone should continue to serve as noteworthy topside barriers along with 10/12 and 9/24 highs. As for the downside, our two uptrend lines serve as key technical cushions along with previous October lows.
Present Price: 89.66
Resistances: 89.68, 89.82, 89.97, 90.21, 90.43, 90.63
Supports: 89.45, 89.16, 88.97, 88.78, 88.63, 88.41
Psychological: 90, 2009 and 2008 lows