Article by ForexTime
The yen saw fresh lows against the dollar and euro, as the greenback broke out technically. USD/JPY logged a fresh six-year peak of 106.55, pushing shorts out of the market on its way higher. The EUR/JPY hit a six-day high of 137.71.
Japanese data Tuesday was on the soft side of expectations, with July machine orders down 3.5% month over month (expected +4.0%) and August PPI data +3.9% year over year (+4.1% expected), which maintained the idea that the BoJ is heading for further monetary stimulus.
In Europe, Spanish production came in weaker than expected in July, with a growth rate of 0.8% month over month, versus consensus for a rise of 1.4% month over month. At the same time the June data was revised down to 0.7% month over month from 0.8% month over month reported initially. Nevertheless, this is still a robust growth rate and with Spanish PMIs continuing to come in strong, the Spanish economy is set for a further stabilization of growth as structural reforms show their positive impact. Unemployment, while stabilizing, remains at very high levels.
Additionally, France will likely miss budget target for at least 3 more years. French Finance Minister Sapin said Tuesday in Paris that France’s budget deficit will widen for the first time in five years to 4.4% of GDP this year, up from 4.3% last year. The French government initially pledged to bring the deficit below the 3% limit laid down in the Maastricht Treaty this year, but with the government revising down its growth estimate to just 0.4% this year and 1% in 2015 the 3% limit is now expected to be reached only in 2017. It is nearly impossible to see robust growth and austerity at the same time at the bottom of the economic cycle. With the ECB attempting to throw the kitchen sink at the European economy, countries should put austerity on the back burner and attempt to see growth and inflation.
The technical picture for the dollar is strong. The breakout of the USD/JPY will likely generate a test of the 2008 highs at 1.1085. Support is seen near former resistance at 105.50. Momentum on the currency pair is positive on a daily, weekly and monthly basis. The MACD generated a buy signal on both the daily and weekly charts which reflects positive momentum that is likely to bring a higher USD/JPY.
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