US Dollar Has First Down Day Since May 8; Christopher Vecchio, Currency Analyst at DailyFX, comments on the US Dollar and the Japanese Yen

"The US Dollar has been undeniably the most attractive currency over the past several weeks, and through Friday's close, it was neck-and-neck with the Euro as the top major performer in the 2Q'13 (EURJPY +8.85%, USDJPY +8.71%). On the flipside, the Asian-Pacific currencies, the Australian and New Zealand Dollars as well as the Japanese Yen, have depreciated quite substantially in a short period of a time (for the commodity currencies in this group, the losses accelerated only in May). Thanks to overextended conditions in the Dow Jones FXCM Dollar Index

– the highest daily and weekly RSIs since the early-March top – and several psychologically significant figures hit in the components of the index over the past week (AUDUSD $0.9700, EURUSD $1.2800, GBPUSD $1.5100, USDJPY ¥103.00), there is now some scope for profit taking in the world's reserve currency. Certainly, given the mixed batch of secondary US data last week and with two major Federal Reserve events on the docket this week – Chairman Ben Bernanke testifies early on Wednesday, with the May FOMC meeting Minutes releases later in the day – there is reason for a pause in the recent US Dollar surge. Last night presented some very interesting trading conditions that might have helped stoke the turnaround in the buck, with Japanese Economic Minister Akira Amari saying that the excessive strength seen in the Yen the past several years has been “largely corrected.” This is a notable shift in his stance the past several weeks, that it would be inappropriate to discuss specific exchange rates. Regardless, the bottom line is that Japanese policymakers aren't deaf to the calls that a weak Yen could have negative implications as well, such as higher energy costs, and that ‘Abenomics' could put significant upside pressure on Japanese sovereign debt (JGBs). This could be a poignant counterpoint to Yen weakness in the near-term."