USDJPY Bulls In Control, Widening Bond Spreads Support Upside

USDJPY Analysis and Talking Points:

• Widening Rate Differentials Spur Upside
• USDJPY Bulls Clear Key Levels

Widening Rate Differentials Spur Upside

USDJPY is now trading at fresh YTD highs as yesterday’s strong US data (Durable Goods) further reinforced the view that the US economy remains strong. Alongside this, US yields have continued to firm amid the tightening of monetary policy by the Federal Reserve and thus keeping USDJPY supported. That said, BoJ Governor Kuroda earlier mentioned this week that the rate differentials between the US and Japan are expected to widen, which should lead to USDJPY rising. As such, this increases the risk of a move towards 114.00 before hitting the November 2017 at 114.73.

US/JP 2yr Bond Spreads vs. USDJPY

Source: DailyFX

USDJPY Bulls Clear Key Levels

Yesterday saw USDJPY clear key resistance at the 61.8% Fibonacci Retracement (113.20), as such, bulls are looking for a close above this level to confirm a further push higher in the pair. Price action to the upside has been contained with offers around 113.50, while 113.75 could also curb the rise. Elsewhere, a $1.6bln option expiry at 113.00 could also draw the pair lower, providing 113.50 holds.

USDJPY PRICE CHART: DAILY TIMEFRAME (Sep 2016-Sep 2018)

Chart by IG

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--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

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