USD/JPY Tests 105 on Last Trading Day of 2013
The dollar continued to enjoy strong gains against the yen in the latter days of the year. The weakness in the yen has spilled over into the Nikkei propelling the index to the best returns since the early 80’s. A very accommodative monetary policy in Japan has fueled gains on the carry trade, allowing investors to purchased dollars and stocks with cheap yen.
The Chinese yuan finished the year with a surge, rising to new multi-year highs against the dollar and the yen. It appreciated nearly 3% this year, with the bulk of the gain coming in the last week. It has appreciated against all the Asian and G10 currencies. China will likely push back more against the yen’s depreciation and we will be carefully monitoring the data for signs that China will use its economic wherewithal to express its displeasure with Japanese political developments.
The USDJPY briefly moved above 105 for the first time since mid-2008, as interest rate differentials moved in favor of the greenback. The 10-year yield differential, which is the difference between the yield on 10 year US treasuries and Japanese government bonds, moved above 2.60% driving the currency pair to new highs. Support on the USDJPY is seen near the 10-day moving average at 104, while resistance is seen near 106.70.
Despite the strong move higher momentum on the currency pair is flat. The MACD is printing near the zero index level reflecting consolidation. The RSI (relative strength index) is printing near 68 which is on the upper end of the neutral range and close to the overbought trigger level of 70.
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