Analysis and Opinion »

Yen Weakens After Soft GDP Report

Finances
Share on StockTwits
Published on
www.finances.com
Yen Weakens After Soft GDP Report

The combination of weaker than expected GDP growth and tensions in Ukraine have conspired against the Yen allowed the greenback to gain traction. Yields have moved in favor of the dollar, boosting the yield differential in the 10-year space back to levels seen near the end of 2013.

Japan has revised down its Q4 GDP growth expectations to 0.2% from an initial 0.3%, with the economy held back by soft capital expenditures and consumer spending. The current-account deficit increased to a record $15.4 billion dollars in January. Friday’s better than expected US payroll report helped lift the 10-year yield differential to 225 basis points a level not seen since December.

Volatility is increasing as investors refocus on tension in Ukraine. Russian forces in Crimea have been increased and they are consolidating their control of Crimea. This involves neutralizing Ukrainian bases in Crimea and getting control of communication and transportation, as well as securing borders. Despite the warnings from the US that Russia should not be involved in Ukraine sovereignty, the desire to annex the Crimea peninsula is too great for the mother country.

Last week the Crimean Parliament approved re-joining Russia; which will move to the people for a vote this week. The annexation of Crimea by Russia represents an important escalation of the crisis. This comes as the US and Europe is a trying to integrate Ukraine more into the Atlantic economic community. The agreement that the EU and US are trying to push forward is the same one President Yanukovych had almost signed and instead did not and cut a deal with Russia at the last moment.

chart-yen-weakens-soft-gdp-report.png

The USDJPY is poised to test the January highs near 104, as momentum picks up. The MACD (moving average convergence divergence) index has generated a buy signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.

Share on StockTwits