Japanese Yen Benefits From Risk Aversion, Euro Extends Decline
The Japanese Yen rallied across the board on Tuesday as investors scaled back their appetite for risk, with the USD/JPY crossing back below the 50-Day SMA to trade at low of 92.22. The dollar-yen remains nearly 50pips lower on the day after moving 83% of its ATR, and the lack of momentum to cross back above the 240-SMA at 93.12 may keep the exchange rate within a tight range throughout the North American trade as the ongoing uncertainties surrounding the European rescue plan weighs on market sentiment. However, as price action crosses back above the 120-SMA at 92.58, another leg higher could lead the pair to make another run at the 20-Day SMA (93.22) as the 100-Day SMA continues to push above the 200-Day SMA at 91.29.
The Euro extended the decline from the previous day and is the weakest link amongst the majors, and the single-currency may continue to trend lower over the near-term as investors remain skeptical of the EUR 750B bailout package for the ailing economies operating under the fixed-exchange rate system. The EUR/USD is 80+pips lower from the open after moving 79% of its average true range, but the bullish divergence in the 30-minute RSI suggests that the downward pressures on the exchange rate is tapering off, which could leave the pair within a narrow range going into the Asian session. In addition, as the daily RSI bounces back from a low of 22, the euro-dollar may continue to pare the sharp decline from the previous week as policy makers continue to take unprecedented steps to support the rebound in economic activity. However, as inflation remains subdued, with the central bank expecting to see an uneven recovery this year, the dovish outlook held by the Governing Council may drag on the exchange rate over the medium-term as investors scale back expectations for a rate hike later this year.
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