The Dollar Gains Traction Despite Yields Edging Lower
The dollar gain traction against the yen after falling nearly 3 big figures over the past 5-trading session. The yen has been a beacon of strength during the increased volatility that was ignited by emerging market tensions. Japanese retails sales were weaker than expected while the Federal Reserve tapering continued to reduce US long term yields.
Japanese December retail sales were weaker than expected, posting a 1.1% fall month over month after a 2.0% rise in November. The consensus had called for a 0.3% increase, anticipating a continued front-running of the retail sales tax hike on April 1, 2014.
Inflows into Japan for stocks are beginning to subside. The MOF weekly portfolio data was released and shows that foreign appetite for Japanese stocks is waning. The 2.45% decline in the Nikkei Thursday brings the year-over-year decline to 7.9%. Foreign investors sold Japanese stocks last week and appear set to have been net sellers for the month, the first such month since last August.
In Europe on Thursday, Germany released a strong employment report. Unemployment fell by 28,000 people, more than five times more than the consensus expected. The unemployment rate stands at 6.8%, unchanged from the December reading.
The FOMC decided to reduce their bond purchases by 10 billion dollars per month beginning in February and most pundits believe the Fed will continue to taper at its March meeting and reduce the bond purchase program by another 10 billion dollars down to 55 billion for the Month of April. The data will now likely be the driving force behind any future Fed moves. A second consecutive weaker than expected jobs report could move the needle. Even more important will be the state of inflation in the US, which will be reflected in the Commerce Departments release of Personal Income Expenditures.
The USDJPY is holding support near 102 with resistance seen near the 10-day moving average at 103.3. Momentum is negative with the MACD printing in negative territory. The RSI is printing near 43, which is on the lower end of the neutral range.
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