Article by ForexTime
USD/JPY spiked to a four-month highs above 103.30, as the dollar was buoyed by stronger than expected housing starts on Tuesday. The greenback has been unpinned following net positive U.S. data and ahead of the FOMC minutes from the late July meeting, due later Wednesday, which may show the hawkish voices at the Fed strengthening a little.
Japan’s exports grew 3.9% year over year in July, matching expectations for a rebound after the revised 1.9% year over year drop in June. Imports rose 2.3% year over year in July, contrary to an anticipated decline following the 8.4% gain in June. The bounce in exports is encouraging, as it follows back to back declines in May and June. A weaker yen was expected to drive export growth this year, but the results in the first half were underwhelming. The combination of a weaker yen and better U.S. growth should provide an export boost in the second half. However, structural changes remain one of the key uncertainties for Japan’s export oriented economy, as regional rivals muscle in on Japan’s export markets.
The greenback was also buoyed against the Euro following weaker than expected inflation data. German Jul PPI inflation came in weaker than expected at -0.8% year over year, down from -0.7% year over year in the previous month and with prices down 0.1% m/m from June. The data adds to other weak Eurozone inflation data and coupled with signs of a slowdown in growth momentum will keep pressure on the ECB to do even more to support the recovery, especially as the sanctions against Russia are starting to backfire.
The USD/JPY surged above trend line resistance and is poised to test the March highs at 104.11. Support on the currency pair is seen near the 200-day moving average at 102.40. Momentum has turned positive with the MACD (moving average convergence divergence) index generating a buy signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The index moved from negative to positive territory confirming the buy signal. The RSI (relative strength index) which is a momentum oscillator that measures overbought and oversold levels moved higher with price action reflecting accelerating positive momentum while printing a reading of 70 which coincides with the overbought trigger level.
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