The Yen came into the week with a full head of steam, continuing to gain as US Treasury yields were falling, thereby creating more unwind of the carry trade. But, that found support on Tuesday around some FOMC commentary and as yields pushed-higher into the end of the week, USD/JPY staged a strong recovery.
Yen price action has become highly dependent on movements in Treasury yields of late and the reason for that is the carry trade. If treasury yields continue their ascent, the Yen remains an attractive vehicle for funding carry; but if yields turn-around such as we saw after the July FOMC rate decision, we could see an ‘up the stairs, down the elevator’ type of dynamic.
As for USD/JPY
Given the matter at hand, USD/JPY remains of interest for both yield and Yen-themes. After all, if we’re seeing higher yields getting priced-in to the equation we’re likely going to be seeing some element of USD-strength to go along with Yen-weakness. The point of challenge in USD/JPY is the size of the move already, with price having jumped by almost 500 pips this week after that Tuesday reversal.
There was a short-term inverse head and shoulders pattern in USD/JPY. That cleared on the Friday breakout and prices pushed above the psychological level at 135. A pullback to support around prior resistance can keep the door open for bullish continuation. The prior neckline of the inverse head and shoulders pattern is around 134.60, so that becomes a point of interest. And there’s a Fibonacci level that’ s a bit deeper, around 133.55 that could remain as an ‘s2’ point of support.
On the resistance side of the coin, there’s a Fibonacci retracement around prior support-turned-resistance at 135.83, after which a price action swing shows up at 137.35.
Yen price action has become highly dependent on movements in Treasury yields of late and the reason for that is the carry trade. If treasury yields continue their ascent, the Yen remains an attractive vehicle for funding carry; but if yields turn-around such as we saw after the July FOMC rate decision, we could see an ‘up the stairs, down the elevator’ type of dynamic.
As for USD/JPY
Given the matter at hand, USD/JPY remains of interest for both yield and Yen-themes. After all, if we’re seeing higher yields getting priced-in to the equation we’re likely going to be seeing some element of USD-strength to go along with Yen-weakness. The point of challenge in USD/JPY is the size of the move already, with price having jumped by almost 500 pips this week after that Tuesday reversal.
There was a short-term inverse head and shoulders pattern in USD/JPY. That cleared on the Friday breakout and prices pushed above the psychological level at 135. A pullback to support around prior resistance can keep the door open for bullish continuation. The prior neckline of the inverse head and shoulders pattern is around 134.60, so that becomes a point of interest. And there’s a Fibonacci level that’ s a bit deeper, around 133.55 that could remain as an ‘s2’ point of support.
On the resistance side of the coin, there’s a Fibonacci retracement around prior support-turned-resistance at 135.83, after which a price action swing shows up at 137.35.
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