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The Dollar Gains Traction Following Weak Yen Employment Data

David Becker
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The Dollar Gains Traction Following Weak Yen Employment Data

The dollar continued its uptrend on Tuesday and is poised to test fresh trend highs at 110. Interest rate differentials moved in favor of the greenback as investors piled into stocks and pushed medium term interest rates to 2014 highs. Data out of Japan were net negative for the yen, helping underpin USDJPY and leaving the six-year peak in scope.

Japan’s unemployment rate fell to 3.5% in August from 3.8% in July. The Job Offers ratio sat at 1.10 in August for the third month. The decline in August takes the unemployment rate closer to the multi-year low seen in May, and leaves the measure at the bottom of the 3.5% to 5.5% range seen since 2009.

Also released, overall household real PCE fell 4.7% in August year over year on a price adjusted basis after the 5.9% decrease in July. Consumption continues to retreat in the wake of the April consumption tax hike after posting solid growth through March as consumers made purchases in advance of the tax hike.

Looking forward to the end of the week expectations of a 200k+ September payroll gain sits above the disappointing 142k August rise but below the 202k-304k gains of the prior six months. This should help yields rise and benefit the dollar. Payrolls face ongoing upside risk from a firm trend for initial claims, producer sentiment and ADP, solid vehicle assemblies, and an ongoing consumer confidence climb back above mid-2013 levels.

Support on the USDJPY currency pair is seen near the 10-day moving average at 109. Momentum is flat with the MACD (moving average convergence divergence) index printing near the zero index level. The RSI (relative strength index) is overbought printing a reading of 75, which is over the overbought trigger level of 70 and could foreshadow a correction.

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