The USD/JPY gained traction against a generally backdrop of complacency follow the extreme volatility that has been experienced over the past three-weeks. This has also been reflected in U.S. swap spreads which have been narrowing and appear at odds with over all increased market volatility. This is despite heavy corporate issuance and Fed risk just ahead. The 10-year swap spread hit a narrow of 0.75 basis points compared to September levels of 6 basis points and August highs of +9.75 basis points. That’s the tightest level in 3-years, the last time that spreads went negative.
The exchange rate hit resistance near the 20-day moving average at 120.65, with support on the currency pair seen near the recent lows at 118.80. Momentum has turned positive with the MACD (moving average convergence divergence) index generating a buy signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The index moved from negative to positive territory confirming the buy signal.