The USD/JPY continues to fill out its right shoulder on discouraging volume.  The fact volume hasn’t picked up is limiting the ability of the USD/JPY to propel through the top of its right shoulder towards 100.  The USD/JPY is mysterious since it still hasn’t participated in the broad equity rally, serving as the cautionary flag among economic recovery optimists. 

Normally positively correlated, the fact the USD/JPY hasn’t followed suit is disconcerting.  The USD/JPY snuck below our 2nd tier downtrend line and is playing with fire.  If April lows don’t hold then we could see a sizeable near-term selloff.  However, we recognize the significance of 100, and putting this level in the rear-view mirror would symbolize full investor confidence in a broad, global economic recovery.  Due to the mixed performance of the USD/JPY, we have a neutral stance.

Japan has a couple news events this week, including BOJ Governor Shirakawa addressing the public on Wednesday followed by Core Machinery Orders on Thursday.  Core Machinery Orders showed significant improvement with a surprise to the upside last month, so it will be interesting to see if the data point can continue to show improvement.  Since Core Machinery Orders are forward-looking and indicative of the outlook of Japanese exporters and manufacturers, this release could be a market-mover.

Fundamentally, we maintain resistances of 97.32, 97.98, 98.67, 99.20, and 99.79.  To the downside, we see supports of 96.33, 95.58, 95.12, 94.50, and 93.66.  The 100 level serves as a key psychological barrier with 95 acting as a psychological cushion.  The USD/JPY is currently exchanging at 97.09.

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