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The Dollar consolidates as investors absorb weak data

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The Dollar consolidates as investors absorb weak data

The dollar was higher against the Yen for most of the week, as riskier assets moved back into vogue on the heels of FOMC Chairman Ben Bernanke’s testimony to congress on Wednesday and Thursday.  The Chairman was grilled by veteran congressmen and senators during the two day testimony on the direction of monetary policy.  Bernanke’s message was crystal clear in that he plans on keeping the current bond purchase program intact until economic conditions warrant a change.

The USDJPY held up very well this past week despite the fact that the 10-year yield differential moved in favor of Japan.  The currency pair is generally correleated to the yield differential but the r squared can occasionally break down reflecting a divergence in the two products.  US yield have given back approximately 20 basis points and are now near 2.55% after testing the 2.75% in the past two weeks.

Economic data in the US was releatively soft during the week, with retail sales showing the poorest performance notching up a gain of only .4%.  Excluding autos, retail sales actually contracted which feeds into a less than 1% GDP for the second quarter of 2013.  Surprisingly, manufacturing seems to be picking up with the Philly Fed printing at 19.6, more than double the index level expected by economists.

The USDJPY currency pair tested resistance near a downward sloping trend line at 100.50.  A close above this level would test the June highs at 101.70.  Support on the currency pair is seen near 99.86 which coincide with the 10-day moving average.

Momentum is flat with the MACD (moving average convergence divergence index) printing near zero, while the RSI (relative strength index) is also reflecting a consolidative tone printing at 55 which is in the middle of the neutral range.

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