USD/JPY Monthly Analysis for November 2012

The USD/JPY posted a strong gain in October, boosted by the Bank of Japan’s first back-to-back monthly stimulus expansion since 2003. The new program is designed to provide unlimited support for bank loans in order to generate growth, yet skeptics say it’s too little, too late to move the economy. 

Earlier in the year, the central bank had set its sights on producing inflationary growth of at least 1 to 2 percent. This would have allowed the economy to post inflationary gains for the first time after two decades of inflation. One problem that has surfaced is the weak loan demand from Japanese corporations who are looking to cut capital spending because of weakening exports and shrinking domestic demand. 

Technically, the USD/JPY finished in a position to breakout to the upside above a 50% price level at 79.870. This price has acted as a pivot price for several months since a range was formed between 75.566 and 84.173. 

A downtrending resistance angle from the May 2010 top at 94.980 is also providing resistance this month at 79.980. This angle actually forms a key resistance cluster with the 50% price level at 79.870 and 79.980. 

Before getting too excited by the breakout, keep in mind that the USD/JPY has also created a range between 84.173 and 77.123. This range has formed another retracement zone at 80.648 to 81.480. The combination of the retracement zone may produce choppy trading conditions during November. 

The bigger picture indicates that the main trend is still down on the monthly chart. While a penetration of the retracement zone and the Gann angle will be signs of strength, the main trend will not turn to up until the swing top at 84.173 is violated. Currently, the Forex pair is forming a potentially bullish secondary higher bottom at 77.123. 

Past history suggests that the USD/JPY is trading in an area that typically attracts intervention by the Bank of Japan. The recent action by the central bank to provide additional stimulus to the economy may eventually give the Forex pair a boost, but it is not likely to be as strong as an outright intervention. 

Traders should also pay close attention to the global equity markets and the general demand for higher risk assets. Falling stock and commodity prices could drive investors into the safety of the lower-yielding Yen. This would drive down the USD/JPY.