Article by ForexTime
The Japanese markets reopened Tuesday after yesterday’s holiday. USD/JPY dipped slightly below Friday’s low in making 106.92 before rebounding to the 107.25 area. China FDI for August fell to a four-year low after dropping 14% year over year. Recent data out of Japan have allowed economists to maintain the view that the Bank of Japan is heading for further monetary stimulus, which contrasts the Fed’s course, albeit gradual, towards tightening. With yield differentials, pointing to a higher currency pair, risk aversion in global markets, should be the only impetus that drives the yen higher. Japanese policymakers have endorsed the strengthening trend of USD/JPY, with BoJ’s Kuroda, for instance, having recently said that FX moves have been consistent with fundamentals.
The BoJ’s Kuroda said that “we are only half way there” with regard to achieving the central bank’s 2% inflation target. The USD/JPY pair left a 107.32 high in early London trade with the dollar holding firm into tomorrow’s Fed announcement, but the market looks to lack the impetus for a test of Friday’s six-year peak at 107.39. Recent data out of Japan have maintained the view that the BoJ is heading for further monetary stimulus, which contrasts the Fed’s course, albeit gradual, towards tightening.
The 10-year yield differential on the USD/JPY moved back above 200 basis points which makes it attractive to invest in the greenback. The 2-year yield differential hit a 4-year high, moving above 50 basis points for the first time since September of 2010.
The USD/JPY remains in an uptrend, with support seen near the 10-day moving average near 106.30. The next level of target resistance on the currency pair is seen near the August 2008 highs near 109.20. Momentum remains positive with the MACD (moving average convergence divergence) index printing in positive territory with an upward sloping trajectory. The RSI (relative strength index) remains overbought printing a reading of 77, well above the oversold trigger level of 70, and could foreshadow a correction.
Article by ForexTime
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