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Strong Yields Push Greenback Higher

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Strong Yields Push Greenback Higher

The dollar gained traction against the yen immediately following the US employment report which pushed long term yields higher. The 10-year benchmark US yield moved above 2.9% for the first time since September and is now poised to test the 3% level. Currency investors are concerned that a stronger US economy will lead the FOMC to taper their bond purchase program, driving the dollar higher as interest rate differential move in favor of the greenback.

The Bundesbank increased their growth forecast which helped offset some of the strength in US yields. Germany’s Bundesbank has increased its growth outlook and now expects the country’s economy to expand 0.5% this year and 1.7% in 2014. Previously, the central bank had projected growth of 0.3% and 1.5% respectively. The Bundesbank also forecast that GDP will increase 2% in 2015.

Prior to the opening bell, the Bureau of Labor Statistics released non-farm payrolls and the unemployment rate. According to the Department of Labor, non-farm payrolls increased by 203,000 in November compared to expectations of a climb of 180,000. The October payrolls number was revised higher by 4K jobs to 204,000. The most surprising number was the decline in the household survey report which dropped to 7% from 7.3%. According to the BLS the decline was driven by an increase of nearly 820K jobs that were created in November. The average hourly earnings number increased by 0.2%, which was in line with expectations. The jobs participation rate actually ticked up to 63% from 62.8%.

The USDJPY reversed some of the last three day’s losses, moving back through the 10-day moving average and poised to test the recent highs near 103.50. Momentum has turned negative and the MACD generated a sell signal, which will need to be carefully watched given the new information. The RSI shows that momentum is accelerating higher, and it is printing near 66, which is on the upper end of the neutral range.

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