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US Dollar - Japanese Yen Technical and Fundamental Forex Forecast for May

US Dollar - Japanese Yen Technical and Fundamental Forex Forecast for May

2011-05-12 00:21:00
Joel Kruger, David Rodriguez,
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US Dollar / Japanese Yen Monthly Technical Forecast

Weekly Chart

us_dollar_japanese_yen_technical_fundamental_forecast_body_yen.png, US Dollar - Japanese Yen Technical and Fundamental Forex Forecast for May

Prepared by Joel Kruger

No clear evidence of recovery just yet and the market continues to consolidate just off the recently established record lows by 76.25. However, longer-term studies are looking stretched, and at current levels, buying on dips by 80.00 in anticipation of an eventual upside break beyond the range highs by 85.50 could prove to be a highly rewarding trade. Ultimately, only a weekly close back below 80.00 would give reason for concern and open the door for a retest of the 76.25 record lows.

US Dollar / Japanese Yen Interest Rate Forecast

Currency, Central Bank

US Dollar, US Federal Reserve

Japanese Yen, Bank of Japan

Net USDJPY Spread

Signal

1-Year Expectations(Basis Points)

32

0

32

Bullish

Yield in 1 Year(Percent)

0.57

0.30

0.27

Bullish

us_dollar_japanese_yen_technical_fundamental_forecast_body_Picture_4.png, US Dollar - Japanese Yen Technical and Fundamental Forex Forecast for May

A noteworthy deterioration in US Federal Reserve interest rate expectations has largely coincided with a similar USDJPY decline—underlining the pair’s sensitivity to yields. Depressed Fed forecasts support calls for continued USDJPY weakness, but one has to wonder how much further yields could fall. Indeed it seems that the US Dollar remains in a very wide and choppy range against its similarly low-yielding Japanese counterpart.

Beyond interest rate expectations, it will be important to watch relative moves between US Treasury yields and Japanese Government Bond yields. The correlation between yield spreads and the USDJPY itself remains quite strong, and it may be especially important to watch Treasury yields as they approach significant support. The 10-year yield currently sits at 3.15 percent—matching 6-month lows set in March. There is little in the way of further support beyond 3.15 until 2.75 percent, and a 40 basis point drop in yields would likely lead to important USD weakness versus the Japanese Yen.

It remains significant to watch for moves in fixed income markets.

Written by David Rodriguez, Quantitative Strategist and Joel Kruger, Technical Strategist for http://www.DailyFX.com

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

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