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USDJPY: Is Yen-Strength Sending a Signal as the US Yield Curve Inverts?

USDJPY: Is Yen-Strength Sending a Signal as the US Yield Curve Inverts?

2019-03-22 14:30:00
James Stanley, Currency Strategist
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US Dollar, USDJPY, EURUSD Talking Points:

- It’s been a wild week on short-term charts around the US Dollar, as the currency pushed down to a fresh monthly low, catching support at a bullish trend-line before moving towards the weekly close with two very strong days of price action. EURUSD was very much along for the ride, first running up to prior range resistance at 1.1448 at which point the music stopped and sellers took-control.

- Yen-strength showed up after the FOMC rate decision this week; and when combined with the growing inversion in the US Yield Curve – it may be telling us something. Stocks and bonds in the US have been in full rally-mode and rarely do both markets see synchronized strength. Usually, bonds are ‘right,’ and with yield curve inversion punctuating the backdrop, there may be a case for reversals in US equities as the end of Q1 nears.

- DailyFX Forecasts are published on a variety of currencies such as the US Dollar or the Euroand are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

US Dollar Puts in a Wild Week; Goes Nowhere

It’s been a climactic week in the US Dollar. The currency put in a strong bearish move around the FOMC rate decision on Wednesday of this week, and this pushed the currency all the way down to the bullish trendline that connects September and January swing-lows. Since then – buyers have very much remained in-charge over the past couple of days as the US currency has moved right back towards its weekly open price; making for a net result of a Doji for this week’s price action in USD.

US Dollar Weekly Price Chart

us dollar usd weekly price chart

Chart prepared by James Stanley

Given the context of the above situation, with the ascending triangle formation in the US Dollar seeing a doji print after a failed test at support; the door can remain open to further topside in the US Dollar. This will likely be linked to another related theme in EURUSD, as the world’s most active currency pair also saw a fairly climactic week on the charts.

EURUSD Rebuffed at Range Resistance

Two week ago, the European Central Bank signaled a course-correction when announcing another round of fresh TLTRO’s just a few months after announcing an exit from stimulus. The bank also cut growth and inflation forecasts, and this led to a brief but noticeable move of Euro weakness as EURUSD pushed below a range that had been in-place for four months.

But support caught just hours after the announcement, and this is around the time that the US Dollar ran into resistance around the yearly highs: Since then, EURUSD put in a reversal that took-out the entirety of the ECB-fueled bearish move.

EURUSD continued to rally into this week, eventually running up to prior range resistance around 1.1448, at which point sellers came back in and have continued to push since. This keeps eyes on EURUSD and whether the pair can continue down to fresh lows; doing what many expected but didn’t see happen after that ECB rate decision earlier this month.

EURUSD Daily Price Chart

eurusd eur/usd daily price chart

Chart prepared by James Stanley

Yen Strength Re-Emerges After FOMC, USDJPY to Fresh Monthly Lows

One of the more notable items showing up this week has been re-emergence of Yen-strength; and when combined with the inversion in the US Treasury Yield Curve – this may be telling us something.

Yen-weakness has been a visible theme through most of 2019 trade, following a significant surge of strength in the currency as the New Year began. This came-in with a degree of correlation with the ‘risk on’ trade that saw US equities fly to fresh highs. But – this week has seen Yen-bulls come back into the picture and prices have already pushed all the way down to 110.00 in the pair; begging the question as to whether-or-not another round of risk aversion may be nearing.

USDJPY Eight-Hour Price Chart

usdjpy usd/jpy eight hour price chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q4 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers an abundance of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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