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USD/JPY Forecast: Rising Treasury Yields Moderates Yens Recent Gains

USD/JPY Forecast: Rising Treasury Yields Moderates Yens Recent Gains

2021-01-12 12:50:00
Warren Venketas, Markets Writer

USD/JPY ANALYSIS

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2021 has begun with the U.S. Dollar making a comeback after a torrid 2020. After Democrats won two Georgia Senate seats which allows for the theoretical control of the Senate, a sell-off in bonds ensued as investors anticipated large scale spending as added stimulus is injected into the US economy. This caused a spike in Treasury yields as reflected by the US 10-year yield chart below. This resulted in a stronger greenback and consequently a weaker Yen relative to the Dollar.

U.S. 10Y T-Note Daily Chart:

U.S. 10Y T-Note

Chart prepared by Warren Venketas,Refinitiv

USD/JPY TECHNICAL ANALYSIS

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USD/JPY Daily Chart:

USD/JPY daily chart

Chart prepared by Warren Venketas, IG

USD/JPY why currently trading at a key area of confluence as price action has settled at diagonal resistance (dashed black line) in conjunction with the historical 59 resistance level indicated on the Relative Strength Index (RSI). Yesterday’s long upper wick candle formation suggests a failed push up by bulls which could imply a reversal against the recent upward trend. A push down from this level will say initial support from the 104.00 psychological level and subsequently 103.00.

A break above diagonal resistance could bring the 105.00 key level into consideration. This move may be coupled with a fundamental backing of the aforementioned rising yields and stronger U.S. Dollar which should be monitored closely.

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US ECONOMIC DATA IN FOCUS THIS WEEK

Inflation and retail sales data for the United States is scheduled this week without any high impact announcements out of Japan. The forecasted figures are likely priced into the currency pair and should not sway price action in any significant manner unless a surprise deviation from estimates arises. Retail sales forecasts show a marked improvement over November numbers which could promote Dollar strength.

economic calendar

Source: DailyFX Economic Calendar

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Key points to consider:

  • USD/JPY: Diagonal resistance
  • RSI 59 level
  • US inflation data

IG CLIENT SENTIMENT SUPPORTIVE OF ADDITIONAL DOLLAR STRENGTH

USD/JPY BEARISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 3% -4% 0%
Weekly 8% -3% 3%
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IGCS shows retail traders are currently net long on USD/JPY, with 55% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment, and the fact traders are net-long is suggestive of a bearish bias on the pair however, due to a higher net change in short positions relative to long positions we settle at a bullish signal.

--- Written by Warren Venketas for DailyFX.com

Contact and follow Warren on Twitter: @WVenketas

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

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