Yen Gains Traction After Robust Tankan Report
All eyes will be on the Federal Reserve this week as investors attempt to determine whether the Fed will taper its bond purchase program. The targets for inflation and unemployment have not been met, and forward guidance will be key to the press conference that follows the Fed meeting. The Tankan Survey in Japan was stronger than expected giving a boost to the Japanese yen.
The FOMC Meeting scheduled for December 17 and 18 will be the most import Fed meeting of the year as investors wait to see if the Fed will taper its bond purchase program. Pundits believe there is a 50-50 chance that the Fed moves before the New Year, but it is unclear if the Fed’s target for tapering have actually been met.
When the FOMC initiated the bond purchase program, their goals were to see 6.5% unemployment with an inflation target of 2%. Although the perception for many is that the inflation target is a guideline to keep below, it is also a target for the Fed to maintain. Inflation expectations have declined using a number of different measurements. The Fed’s preferred measure, the personal consumption expenditures price index, fell to 0.7% in October, less than half the 2% target rate.
In Japan, the Tankan report was reported at 6-year highs for large manufacturers. However, there was disappointment with large corporate capital expenditures slowing to 4.6% vs. 5.1% in the third quarter. Consensus was at 5.5%.
The USDJPY continues to hold up against support near the 10-day moving average at 102.75. Resistance is seen near the recent highs at 103.50. Momentum on the currency pair is flat with the MACD (moving average convergence divergence) printing near the zero index level. The RSI (relative strength index) is printing near 61, which is on the upper end of the neutral range.
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