The Yen Weaken Driving the Nikkei Higher
Yields in the US edged slightly higher on Tuesday, as investors begin to focus on the Fed meeting in which the FOMC is expected to further reduce its bond purchasing program by approximately 10 billion dollars of treasury and agency bonds. The increase in yields is beneficial toward the greenback which gained traction against the Yen.
On Monday, the dollar had slipped to 103.7 but on Tuesday it bounced back to 104.75. Both the yen and the Chinese Yuan were weaker allowing their equity bourses to climb. The PBOC reportedly injected 255 billion into the banking system via 7 and 21-day reverse repos, the first such injection since December 23, 2013.
The short term repo rate in China had surged 150 basis points until the PBOC stepped in lowering the, Chinese seven-day repurchase rate by 88 bps to 5.44% The People’s Bank of China injected fund into the financial system and expanded a loan facility in order to meet demand for cash ahead of the Lunar New Year. The actions helped the Nikkei rally slightly more than 1%.
The USDJPY currency pair edged toward support levels and is poised to test the downward sloping trend line seen near 104.70. A close above the recent highs at 105.60 would be considered a breakout. Momentum is accelerating as the RSI (relative strength index) is moving higher printing near 57, which is in the middle of the neutral range. The MACD (moving average convergence divergence) index, on the other hand is printing in negative territory reflecting downward momentum on the currency pair. The trajectory of the MACD is starting to flatten which reflects the recent consolidation of price action.
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