Yen futures were hammered on Thursday as the currency lost ground against most major currencies. Yen futures had moved to support levels against the dollar and had held support for the past few weeks as investors awaited an impetus to push the currency pair down to new levels. On a cash basis, the USD/JPY currency pair broke through resistance near the 100 yen per dollar level.
Interest rate differentials continued to favor the dollar over the yen, which was a factor in the decline of the yen futures. The 10-year yield differential, which measures the difference between U.S. 10-year yields and Japanese 10-year yields, had moved in favor of the dollar through most of May despite a consolidation in the yen futures contract. The breakthrough came on Thursday after the U.S. Department of Labor released stronger than expected jobless claims data.
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According to the Bureau of Labor Statistics, jobless claims declined by 4,000, compared to the 8,000 rise in claims expected by economists. The employment situation could be improving in the U.S., which has led investors into dollar based assets. As riskier assets in the U.S. rise, the demand for those assets requires that investors purchase the dollar by selling other currencies against it.
The Abe Bank of Japan also has generated the weakness in the yen. On April 4, 2013 the Bank of Japan announced a new quantitative easing program that would focus on inflation and pushing the Japanese CPI up to 2%. The BOJ said they would purchase fixed income assets as well as real estate and ETFs that target stocks. Since that period, not only as the Nikkei pushed to new 10-year highs, but the yen has declined because lower rates are a disincentive for investors to purchase yen.
Chart courtesy of forex training
Yen futures sliced through support levels near .9995, and continued to move lower throughout the trading session. The short term trend is lower with the five-day moving average crossing below the 20-day moving average, which shows that a negative short term trend is in place.
The MACD (moving average convergence divergence) index has created a sell signal as the spread (the 12-day moving average) minus the 26-day moving average, crossed below the nine-day moving average of the spread. The index moved from positive to negative territory confirming the downtrend. The weekly and the monthly MACD indexes also are printing in negative territory reflecting long-term negative momentum on the yen futures contract.
The RSI (relative strength index), an oscillator that measures overbought and oversold levels, is printing near 34, which is on the low end of the neutral range. The RSI moved through the prior low that was near 38, which reflect the negative momentum of the yen futures contract. The breakdown likely will target the week lows seen in mid-2008 that were seen near the .90 level.