Weak Trade Data Lifts USD/JPY
The beginning of the week was not kind to the greenback as weaken yields eroded the USDJPY currency pair. Yields moved from 3% down to 2.82% on Monday afternoon, to the lowest level in more than 2-months. Tuesday’s price action reversed the slide as Japan reported one of the worst current accounts in years.
Japan reported very disappointing current account number on Tuesday. On an unadjusted basis, the deficit of 592.8 billion yen is the largest on record and is about 66% larger than consensus estimates. The unexpected deterioration was not so much a function of the trade account, but the investment income balance. Net investment income fell to nearly a trillion yen, the smallest five months.
The yield differential between the US and Japan in the 10-year space dropped nearly 10 basis points since the weekend, falling from a 3-year high near 230 basis points to 220 basis points on Tuesday. The yield differential is the spread between two or more currencies interest rates and is generally considered a strong driver of the spot currency pair.
The USDJPY fell nearly 3 big figures over the past 3-trading session testing support near 102.80. Target support on the currency pair is seen near the 50-day moving average near 102.60. Resistance is seen near the 20-day moving average near 104.50.
Momentum on the currency pair is negative with the MACD (moving average convergence divergence) index printing in negative territory, near the lowest levels seen since October of 2013. The MACD generated a buy signal in early January as the spread (the 12-day moving average minus the 26-day moving average) crossed below the 9-day moving average of the spread. The index moved from positive to negative territory confirming the sell signal.
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