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The Data Could Turn the Tide

David Becker
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The Data Could Turn the Tide

The USDJPY technically broke out on Monday and a close in the US above the 103 level would confirm additionally upside movements. The only item standing in the way of the USD/JPY’s ascent is the ISM manufacturing report which is scheduled to be released on Monday. A stronger than expected number showing that the US economy is expanding more than expected would lift the greenback futures, while a weaker than expected number would create a false breakout and put the USDJPY back into a range that is floored by support near the 101.25 level.

The BOJ continues to buy about $75 billion worth of securities a month, ahead of a retail sales tax hike on April 1, 2014 that will bring the rate from 5% to 8%. The anticipation of the tax may have helped boost Q1 GDP at the cost of Q2 activity. This combination has only eroded the value of the yen. The economy’s performance after the tax is key to the policy response from the BOJ in terms of more monetary stimulus and from the government in terms of a supplemental budget. The tax will steal the limelight from the Tankan report (scheduled to be released this week), which is likely to show softness in forward looking subcomponents.

The USDJPY is testing resistance at a downward sloping trend line that connects the highs in January to the highs in March. Momentum has turned positive as the MACD (moving average convergence divergence) index generated a buy signal. This occurs as the spread crosses above the 9-day moving average of the spread. The RSI (relative strength index) has moved higher with price action reflecting accelerating momentum while printing near 59, which is on the upper end of the neutral range.

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