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Yen Gains Traction as Risk off Trade Emerges
The Peoples Bank of China devalued again, shifting the yuan’s reference rate to 6.3306 versus the dollar, which is a 1.6% weakening of the Chinese currency relative to yesterday’s 6.228, which itself marked a 1.9% depreciation. The USD/JPY, meanwhile, logged a two-month high of 125.28 before tipping back to the 124.80 area, with the yen’s inverse correlation with stock markets kicking in to support the currency.
Similar to Tuesday, stock and commodity markets dove, and Asian currencies weakened. The Bloomberg JPMorgan Asia Dollar Index hit six-year lows. The Malaysian ringgit and Indonesian rupiah fell to levels not seen since the Asian financial crisis in 1998.
The USD/JPY is forming an outside reversal day lower which is a reversal pattern at the top of a trend. Wednesday’s price action reflects profit taking as the yen takes over as the risk adverse currency. The exchange rate made a fresh high and is now trading below the 10-day moving average at 124.40.
Momentum on the currency pair has turned negative as the MACD (moving average convergence divergence) index generated a sell signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread. The index moved from positive to negative territory confirming the sell signal.
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