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Risk Aversion Allows Yen to Gain Traction

David Becker
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The yen posted gains on Monday amid a developing risk aversion theme as weak house price data out of China fed slowdown concerns in the world’s second largest economy. Unexpected strength in machine orders data also helped the Yen gain traction. The EURJPY also moved lower breaking through trend line support. China house prices slowed to an 11-month low rate of +6.7% year over year in April, down from 7.7% in March. Negative momentum accelerated and the MACD generated a sell signal.

The gain came despite Russia reporting that Putin ordered troops near Urkaine’s boarder back to base, which could signal a possible easing of tensions just six days before the presidential elections in the Ukraine. German Foreign Ministry representative Schaefer said such a move “if verified” would be “a step towards de-escalation”, although he added that the situation in the Ukraine “remains difficult”. So far there doesn’t seem to be a verification yet.

The USDJPY broke through initial trend line support and is poised to test the 100.75 level. A break below this level could lead to lead to a test of the weekly lows near 96. Resistance is seen near the 10-day moving average near 101.73.

Momentum on the currency pair has turned negative as the MACD (moving average convergence divergence) index generated a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread. The index moved from positive to negative territory confirming the sell signal.

The RSI (relative strength index) also reflected negative momentum as the index moved lower with price action. The print near 36, is on the lower end of the neutral range and above the oversold trigger level of 30.

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