Japanese Yen Continues to Lose Ground, Australian Dollar Remains Weakest Amongst the Majors

The Japanese Yen weakened against the greenback for the third day, with the exchange rate pushing to a high of 90.26 on the back of U.S. dollar strength, and the USD/JPY may continue to trend higher going into the Asian trade as the reserve currency benefits from the rise in safe-haven flows. The dollar-yen remains approximately 30pips higher from the open after moving only 55% of its average true range, and the pair may extend its overnight rally following the rise in risk aversion however, we may see the pair hold range throughout the North American session as the 30-minute RSI approaches overbought territory. Nevertheless, as the 10-Day SMA (89.19) looks poised to cross above the 50-Day SMA at 89.55, with the 20-Day SMA trending upwards, the rise in the moving averages favors a bullish outlook for the dollar-yen, and we may see the pair continue to retrace the sell-off from October as the greenback advances across the board.

The Australian dollar tumbled lower for the third day and remains the worst performing currency against the greenback on Thursday as the exchange rate slipped below the 100-Day SMA (0.8848) to a fresh monthly low of 0.8847. The AUD/USD remains 120+pips lower after moving nearly 123% of its ATR, and the pair may continue to retrace the rally from earlier this year as market participants scale back their appetite for higher risk/reward investments. However, as the 30-minute RSI bounces back from oversold territory, the rebound in the relative strength index may lead the aussie-dollar to pare the overnight decline and fill-in the gap from the 100-SMA at 0.8981 going into the Asian trade, and the pair may hold a broad range going into the following year as investors weigh the outlook for future policy. Meanwhile, Credit Suisse overnight index swaps are up approximately 100bp this week after rising as much as 131bp in the previous week, and the pull back in the interest rate outlook may continue to weigh on the exchange rate as the Reserve Bank of Australia looks to maintain a neutral policy stance at its next meeting in February.

Join us to discuss the outlook for the major currencies on the DailyFX Forums

To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com