USD/JPY: Current 86.18 (Sunday, Aug 14, 2010).

Trend: Down.

Outlook: Volatile sideways with bearish outlook.

Please refer daily charts and not short-term charts e.g. hourly charts.

Fundamentals (Recent economic releases):

1) US: Monthly Budget Statement release though slightly better than the expectations but much less as compared to the previous release.
2) US: Consumer Price Index (CPI) data better than previous release.
3) US: Retail Sales releases showed less than expected data but much better than the previous releases.
4) US: Economists at Morgan Stanley reduced their estimate for third-quarter consumer spending (Consumer Spending: 70% of the US economy).
5) US: unemployment rate close to a 26-year high.

6) Japan: The sentiments that Bank of Japan may soon intervene to stop Japanese Yen weakening are fading. But this has to be watched closely as the pressures are mounting.
7) Japan: Not much market moving releases during the past week.
 
Technicals and Market perception:

1) ADX: +DI line remains below –DI line and though ADX fell but still over 37.
2) USD/JPY had been closing below Tenkan-Sen  (daily chart) but crossed over it and found resistance at Kijun-Sen.
3) Daily MACD line crossed over the signal line.
4) The price is dropping but the movement has been somewhat within the Bollinger Bands. Saying this we should also note that thought USD/JPY is unable to break above the upper band, it is breaking below the lower band and getting support there. This indicates that downward movement is not very strong but the mood remains on bearish side for further fall.
5) The downward movement has been quite beautifully within the Bollinger Bands (Daily chart). Support levels near the lower band and resistance near the upper band. The point to be noted that USD JPY has not been able to pierce through the upper band but has been going below the lower band. This suggests the downward pressure.

Analysis: The important point to be observed is that USD/JPY crossed below the psychological barrier of 85.00 and went to 15 years low of 84.71 before getting support. This makes the outlook bearish even though we expect some more upward movement as correction. We expect any upward corrections to have resistances at 86.88 and if that resistance is broken then at 88.10.

The break below 84.80 suggested that USD/JPY should further move down towards 81.20 and then towards the big psychological barrier of 80.00.

Our mid-term outlook will remain bearish till the currency pair breaks above 88.10 resistance level.
 A break above it will indicate further upward movement towards 88.80. Even if USD/JPY breaks over it, we expect a very strong resistance near 89.16.

Approach: Our expectation with this currency pair is bearish but with volatile movement (till it does not break above 89.20) and we would be short-selling at each upward correction. We will be using Bollinger Bands upper band as the reference to identify the entry position, with a stop-loss slightly 25 pips above it.

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For short term currency trades, please refer to daily technical analysis for USD/JPY