USD/JPY currency pair moves up to resistance levels near 100
The USDJPY currency pair moved up to resistance levels on Wednesday but was unable to break through despite an increasing yield differential. The combination of better than expected US data and softer Japanese economic results have pushed the difference in the 10-year yield back to highs not seen since June of 2013.
On Tuesday Japan reported a decline in their Corporate Goods Price Index, which reflects deflation but the year over year number increased to 2.5% from 2.3%. The uptick in inflation reflects that the downward trajectory of inflation might be coming to an end. Core machinery orders disappointed, declining 2.1% in September, compared to the 1.0% decline expected by economists. Growth prospects will be crystalized when the Japanese government reports GDP on Thursday. Capital expenditures moderated gaining around 0.8% after rising 1.3% in the second quarter. The consensus estimates for Thursday Q3 GDP is approximately 0.4%.
The yield differential in the 10-year space moved up to 240 basis points which should drive demand for the greenback over the yen. The correlation between the difference in sovereign yields and the currency pair have been historically high, making it likely that the USDJPY currency pair will break out.
The USDJPY currency pair tested resistance near 100 but was unable to move above this psychological level. Support is seen near the 10-day moving average at 98.80. Momentum is positive as the MACD (moving average convergence divergence) has generated 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 (relative strength index) is printing near 61, which is on the upper end of the neutral range.
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