Dollar Inches Higher Against Yen To 6 Year High

There were no important data releases out of Europe today, giving a chance for both the euro and the pound to stabilize. Meanwhile the dollar extended higher against the yen to reach a fresh 6-year high, helped by higher US Treasury yields.

Market expectations on an early rate hike by the US Federal Reserve helped put more strength into the greenback, which hit as high as 106.78 yen in European trading hours today, the highest level since September 2008.

The dollar has been rallying strongly this week after a Federal Reserve research paper that showed investors expected a slower rate hike than Fed policymakers themselves expected. It is hoped that the research paper would convince many investors of the need to bring forward expectations for the timing of a first rate hike. Meanwhile, the continuation of overall positive economic data from the US has helped lend support to the dollar.

After moving off a 14-month low of 1.2858 on Tuesday, the euro rose against the dollar to trade as high as 1.2962 today in the absence of European data.

Sterling found strong support above 1.6050 and held steady versus the dollar since yesterday’s speech from Bank of England Governor Mark Carney. His hints on a possible rate hike in the spring of 2015 helped pause the recent decline the pound has experienced as a result of the Scottish independence campaign.

The increase in popularity of the pro-independence camp in recent polls has sparked some concern and spooked markets into selling off the pound, which hit a fresh 10-month low today. The Scottish independence vote will be held on September 18th.

While there were no data releases from the UK today, focus will be on BoE Governor Carney’s speech later today when he will appear before Parliament to talk about the Bank’s Inflation Report.

USD/JPY above 106.00

A long term-bullish bias is favoured for USD/JPY as long as key support at 100.74 holds. This is the low of February 2. The market has since approached this level several times without breaking below it.

As can be seen on the weekly chart, after a consolidation phase from February to August, prices have moved higher, recently breaking above key resistance of 105.43, which was the December 2013 high. Prices peaked at 106.78 today, which is the highest level since September 2008. There is scope to target the August 2008 high of 110.66.

For now, the RSI and stochastic are in overbought territory, suggesting a slowdown in the upward momentum before the uptrend resumes.