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Dollar Continues to Edge Higher on Strong BOJ Resolve

David Becker
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Dollar Continues to Edge Higher on Strong BOJ Resolve

The USDJPY hits a fresh 6-year high but has since moved lower and is consolidating after the Tokyo-session surge to 109.46. EURJPY cross also posted new highs. The yen underperformed after Japan’s Cabinet Office downgraded its economic assessment on the back of weak consumption, flat exports and weak industrial output.

Japan’s all-industry activity index also came in sub-forecasts at -0.2%, and Bank of Japan President Kuroda repeated that Japan is only halfway to achieving the 2% CPI target. All this follow a run of economic data that have fed the view that the BoJ is heading for further monetary stimulus, which contrasts the Fed’s course, towards tightening, albeit gradual.

The Fed left policy guidance largely unchanged on Wednesday leaving the statement “considerable time” intact. At the same time the Fed fund forecasts was ratcheted upward, which gave a more hawkish spin even as growth projections were revised slightly lower. Yellen went to pains in her press conference to downplay any meaningful change in the statement, while laying out a revised formula for policy normalization, indicating that broadening dissent at such a key policy juncture was quite normal as well.

The USDJPY surged as momentum remains strong. The MACD is printing at its highest levels in the past 12-months, with an upward sloping trajectory. The only caveat to the strength in the currency pair is the current print on the relative strength index RSI. The RSI is a momentum oscillator that measures overbought and oversold levels and the currency reading of 84, is well above the 70 overbought trigger level and could foreshadow a correction.

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