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USD/JPY Breaks Out as MACD Generates Buy Signal

David Becker
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www.iforex.com
USD/JPY Breaks Out as MACD Generates Buy Signal

The dollar continued to gain traction against the greenback on Friday, rising for a 6th consecutive trading session and breaking out above trend line resistance which momentum continues to rise. The yield differential between the US and Japan continues to point in the US’s favor making it more attractive to invest in dollar assets.

Overnight, Japan released inflation figures that were in line with expectations. Japan’s core CPI rose 3.3% year over year in June, within expectations following the 3.4% core gain in May. The “core-core” CPI , which excludes both food and energy, rose 2.3% year over year in June after 2.2% in May. Total CPI rose 3.6% year over year in June after the 3.7% May expansion. Tokyo core CPI expanded 2.8% year over year in July, after a 2.8% rise in June. Tokyo “core-core” CPI revealed a 2.1% expansion figure in July after 2.0%. Tokyo total CPI rose 2.8% year over year in July following a 3.0% figure in June. The expansion in national core CPI extends the growth we’ve seen for over a year, adding to the evidence that the BoJ’s ongoing effort to end deflation is meeting with some success.

The USDJPY broke out above trend line resistance, and is poised to test the late June highs near 102.25. Support is seen near the 10-day moving average at 101.55. Momentum on the currency pair has turned positive with the MACD (moving average convergence divergence) index generating 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 index moved from negative to positive territory confirming the buy signal. The RSI moved higher with price action, reflecting accelerating positive momentum, while printing near 55, which is in the middle of the neutral range.

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