Yen Gains Ground as Treasury Yields Tumble
The EURJPY is down sharply, with the cross having dived below the May-21, 2014 low and traded below 138.00 for the first time since February. The gain in the yen is due to a sharp seven point drop in U.S. Treasury yields Wednesday, which has narrowed the T-note versus JGB yield advance, despite a one-year low of 0.565% being seen in the benchmark JGB yield Thursday.
Rhetoric by the BOJ’s Shirai was upbeat, although he did say it will take longer than two years to achieve the 2% inflation target. Bigger picture, USD-JPY remains entrenched amid a broad sideways range, roughly contained within 100.00-105.00, which has been in place since early January. This stasis may persist for some time yet, though technical analysts will be marking this as a potential topping formation after the steep rally from levels around 75.0 that was seen during the second part of last year.
Also weakening the Euro was news that Italian refinancing costs hit record lows. Italy sold EUR 2.75 billion of 5-year bonds at a record low yield of 1.62%, down from 1.84% at the previous auction on April 29. The bid to cover ratio rose to 1.38 from 1.30. EUR 3 billion of 10-year bonds with a coupon of 3.75% were sold at an average yield of just 3.01%, also a record low. The bid to cover ratio rose to 1.32 from 1.30. Also sold were EUR 1.75 billion of a 2019 floater.
The EURJPY opened below the 200-day moving average, which is now seen as resistance near 138.3. Additional resistance is seen near the 20-day moving average at 139.75. Momentum is consolidating as the MACD prints close to the zero index level, while the RSI is hovering near 30, which is the oversold trigger level.
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