Article by ForexTime
The USD/JPY is trading near the day’s session lows after softening during the Asian trading session as Japanese PM Abe expressed concern about the pace of recent yen weakness. The same is also true for Bank of Japan policymakers, though a weaker yen remains part of their strategy to achieve the 2.0% CPI target.
The Chair of Japan’s Iron and Steel Federation, Hayashida, also said that excessive yen weakness isn’t favorable for Japan as a whole. Economic data in Japan continues to point to weakness. Japan’s Markit/JMMA manufacturing PMI came in at 51.7 in the flash estimate for September, down from 52.2. The currency pair has entered a consolidation period after the sharp gains seen over the last month, which culminated in last Friday’s six-year peak at 109.46. Fundamentals remain yen bearish. Japan’s Cabinet Office last week downgraded its economic assessment on the back of weak consumption, flat exports and weak industrial output.
The divergence in the central bank policies should continue to help the greenback remain buoyed. Interest rate differentials (which are the difference between each countries short or long term interest rates) continue to move in the greenbacks favor which drives the forward curve toward the dollar and makes dollar assets more attractive.
The weekly chart reflects a robust move in the currency pair after breaking out in early September. The next level of target resistance for the currency pair is seen near the week highs at 110. Support is seen near the breakout level at 106.
Momentum on the currency pair remains strong as the MACD (moving average convergence divergence) index generated a buy signal in late August. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.
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One technical caveat is that the RSI (relative strength index) which is a momentum oscillator that measures overbought and oversold levels, is printing a reading of 75, which is above the overbought trigger level of 70, and could foreshadow a correction.
Article by ForexTime
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