The USD/JPY moved higher after U.S. Core Durable Goods data printed two basis points below analyst expectations.  However, the currency pair is returning some of its gains in reaction to a better than expected showing from New Home Sales.  In addition to America’s wave of data today, investors should keep in mind Japan reported a weaker than expected Trade Balance late Tuesday in the wake of light demand for the nation’s exports.  The USD/JPY’s movement in reaction to this data flow tells us the currency pair is opting to participate in broad-based Dollar sentiment rather than comparative economic performances between the two countries.  However, DGO number is certainly capping gains in the USD/JPY since it only provides less incentive for investors to favor the Dollar over the Yen. 

The weak Japanese export data is disconcerting and puts more pressure on the BOJ to stimulate the economy.  Although, the BOJ likely won’t act until it sees the results of Japan’s general election.  Japan’s election will be watched closely since a defeat of the LDP would likely present a fundamental shift in political and economic policy.  The LDP has run Japan for the past 50 years, so it will be interesting to see how the Yen reacts should the LDP lose as polls predict.    

Japan will release more data tomorrow including Household Spending and the Tokyo Core CPI.  Beforehand, the U.S. and Britain will release heavily-weighted data points of their own.  We recognize multiple inflection points occurring in the USD/JPY, implying volatility could increase over the next 24-48 hours.  Meanwhile, the USD/JPY continues to balance along our 1st tier uptrend and 2nd tier downtrend lines as bulls fight to get the currency pair back above its psychological 95 level.  Broad-based appreciation of the Dollar continues to be the theme around the FX markets with sizable pullbacks occurring in both the GBP/USD and EUR/USD.  The Dollar’s overall strength is helping buoy the USD/JPY, and may result in nice pop tomorrow should the pattern continue with tons of economic data and heightened volatility.  If the USD/JPY’s upward momentum should carry it beyond 95, the currency pair will have to deal with our 3rd tier downtrend line next along with 7/31 highs.

Present Price: 94.42

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