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The Dollar Continued to Gain Ground

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The Dollar Continued to Gain Ground

The dollar continued to gain ground on the day after Christmas moving higher and poised to test resistance near 106.71. Solid economic data released in the US on Tuesday reinforced the rise of the 10-year treasury yield to 2.99%. The yield differential between the US and Japanese 10-year bonds hit its highest level of the year driving money into the currency pair.

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The 10-year yield differential which is generally considered a driving force behind the movements of the USDJPY currency pair moved to its highest levels seen in the past 3-years. The differential is the spread between US treasuries and Japanese government bonds. The spread rose to 217 basis points dragging the USDJPY to new highs for the move.

Yields were buoyed by stronger than expected economic data released during the week. On Tuesday the US released stronger than expected Durable Goods Orders, as well as better than expected New Home Sales. Additionally consumer sentiment hit a year high.

The robust back in China also helped the US dollar gain traction. China sees growth increasing by 7.6% this year. China reportedly estimates that growth will expand to 7.6% coming in above the government’s goal of 7.5%. Economists expect that China will expand 7.6% this year and 7.4% in 2014. The government is set to keep its growth target at 7.5% for next year, the same as that for 2013.

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The USDJPY continued to rise above resistance and is poised to test the monthly highs near 106.70. Support on the currency pair is seen near the 10-day moving average at 103.90. Momentum is solid with the MACD (moving average convergence divergence) index printing in positive territory. The RSI (relative strength index) is printing near 69 which is on the upper end of the neutral range and reflects accelerating momentum.

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