Dollar Climbs to 7-year High Following Tax Hike Delay

The dollar climbed to a fresh 7-year high versus the yen following a statement from Japanese Prime Minister Abe about a delay in the next consumption sale tax hike. U.S. yields continue to climb versus Japanese yields pushing the differential between the two countries interest rates further in the greenback’s favor.

Japanese PM Abe announces sales tax hike delay, and called for snap election. The planned rise in the nation’s sales tax to 10% from 8%, having already been lifted from 5% in April will be delayed until April 2017. Parliament will be dissolved on Nov-2, even though an election is not necessary until 2016. Abe is looking to lock in a fresh mandate for his strategy while his ratings are relatively high and before tackling unpopular policies next year.

USD/JPY logged a new seven-year peak at 117.06, while the yen weakened against the Euro as well. In Europe, the German ZEW investor sentiment much stronger than expected, at 11.5, up from -3.6 in October. This is the strongest reading since July and suggests that optimists once again outnumber pessimists. The current conditions indicator rose only marginally to 3.3 from 3.2. The breakdown showed that inflation expectations as well as short term interest rate expectations continue to fall and that investors are more optimistic about the outlook for stock markets.

The technicals on the USD/JPY continue to look strong. The MACD (moving average convergence divergence) index is printing a reading in the black, but the trajectory is flattening. The RSI (relative strength index) is printing a reading of 81, above the overbought trigger level of 70 and could foreshadow a correction. Support on the current pair is seen near the 10-day moving average at 115.60, while target resistance is 120.50.

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