Thursday, March 22, 2018
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USD/JPY rally gathers traction on higher yields
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  • USD/JPY could be tracking treasury yields higher.
  • Focus on Fed speak and Fed minutes.

The USD/JPY pair is extending the three-day winning streak, tracking the rise in short duration borrowing costs in the US.

As of writing, the pair is trading at 107.75 – above the downward sloping 10-day moving average (MA) of 107.49.

The greenback is well bid possibly due to the rise in the treasury yields. For instance, the two-year Treasury yield, which mimics short-term interest rate/inflation expectations, rose to 2.28 percent in Asia – the highest level since September 2008. It should be noted the sharp rise in yields is being associated with the massive auction of $258 billion in Treasuries this week.

Also, markets could be repricing a more hawkish Fed policy, given the recent data has shown uptick in inflation and wage growth numbers.

Ahead in the day, the spot may come under pressure if the equities turn risk-averse. Also, the greenback could be influenced by Fed-speak. Reuters report says, “comments from Fed members Harker (Wed), Quarles (Thu), Dudley (Thu, Fri), Bostic (Thu), Mester (Fri) and Williams (Fri) are sure to be more relevant for the USD than today’s release of the January Fed minutes.”

USD/JPY Technical Levels

A daily close above the 10-day would cement expectations of a short-term bullish trend reversal and open doors for a sustained move to 108.29 (weekly 5-MA) and 108.54 (38.2% Fib R of Jan. 8 high – Feb. 16 low).

Meanwhile, a failure to hold above the session low of 107.28 would add credence to the downward sloping (bearish biased) 10-day MA and could yield a drop to 106.80 (5-day MA) and 106.57 (1-hour 100-MA).

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