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Yen strength erodes market sentiment

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Yen strength erodes market sentiment

The currency markets were stable on Friday, after experiencing volatility throughout the week.  The Yen remained strong against most major currencies as the BOJ refrained from making changes to monetary policy during this past week’s interest rate meeting. The dollar remained on the defensive on the heels of last week’s weaker than expected non-farm payroll report.

US yields edged lower during the week taking some of the luster off of the greenback.  Generally currency pairs are driven by the interest rate differential which is the difference between one countries currency and another countries currency.  The yield differential for the US dollar moved against the greenback this week, making other currencies more attractive.

The Yen continued to gain strength against the greenback as the BOJ left rates unchanged and did not follow their decision with a statement on their bond purchase program or an economic assessment.  Investors will need to wait to view the meeting minutes from the recent meeting which are scheduled to be released on Monday.  Most market pundits were looking for the BOJ to increase their asset purchase program in an effort to reduce the value of the yen and spur on growth.  The BOJ has an inflation target of 2% for core CPI which is still reflecting negative inflation.

The USDJPY currency pair moved lower on Friday, poised to test support near an upward sloping trend line at 95.05.  Resistance is seen near the 10-day moving average at 97.75.  Momentum is negative as the MACD (moving average convergence divergence) index generated a sell signal and is printing in negative territory with a downward trajectory.  The RSI (relative strength index) broke through support levels and is printing near 37 which is on the lower end of the neutral range.

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