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US Dollar Gains Traction Against the Yen

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US Dollar Gains Traction Against the Yen

As investors moved back into riskier assets, the dollar was able to gain traction against the yen. The Japanese currency is a proxy for risk off trades despite the countries slow growth and low interest rates. On Wednesday Japan reported weaker than expected machinery orders, while the US passed a debt ceiling bill which will help the country avoid a default.

Japan’s core machinery orders, a leading indicator of capital expenditure, dropped 15.7% month over month h in December vs expectations of a decline of 4.1%. The government has targeted increased capital expenditures as an important element in Japan’s battle to end deflation.

The U.S. House of Representatives has authorized a one-year extension to the government’s borrowing authority, until March 16, 2015, without any conditions by a vote of 221-201. There had been plans to link the debt-cap vote to restoring cuts to military pensions, but the battle-fatigued Republican leadership dropped its demands in order to keep the political focus on the affordable health act. The measure now needs to be approved in the Senate.

China’s exports accelerated to +10.6% year over year in January and beat consensus for a rise of just 2%, while imports increased 10% vs +3%. A concern is that, as in the past, the trade figures could have been boosted by fake transactions as people looked to secretly bring money into China.

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The USDJPY was able to hold support near the 10-day moving average at 102. Resistance is seen near the January highs at 104.50. Momentum is strong as the MACD generates a buy signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The index moved from negative to positive territory confirming the buy signal.

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