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Dollar Rebounds a Risk Trade is Revived

David Becker
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Dollar Rebounds a Risk Trade is Revived

The dollar was able to rebound on Wednesday against the yen as a reflection of the risk on trade, after US stocks bounced late in Tuesday’s trading session. The yield differential between the US and Japan increased over the past couple of trading sessions, and as US yields rebounded yesterday so did the greenback. The US economic calendar is heavy and includes housing starts along with the Fed’s Beige Book.

The rebound in US stocks took market participants’ by surprise, but it is likely a bounce in volatility which will keep investors on their toes throughout the spring. The dollar rebounded sharply against the yen as the 10-year yield differential move in favor of the greenback.

In terms of US economic data, March housing starts are expected to bounce as analysts’ forecast a consensus of an increase of 7.0% to 970 million units as the adverse weather conditions in the United States eased. Industrial production and manufacturing output likely continued to expand with analyst’ forecasting a consensus increase of 0.5-0.6%.

The Fed’s Beige Book, ahead of the month-end FOMC meeting, is likely also to report better activity as the spring thaw sets in. Four Federal Reserve officials are slated to speak today, and the highlight will be Yellen’s speech before the NY Economics Club. She is expected to focus on explaining the current Fed stance rather than reveal new information.

The USDJPY initially moved higher to resistance near the 10-day moving average at 102.33. Support is seen near the recent lows at 101.13. Momentum is turning and the MACD (moving average convergence divergence) index is poised to generate 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 RSI moved higher with price action and is printing near 48 which is in the middle of then neutral range.

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