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USDJPY Surges - Here are 5 Charts Which Favor a Break of ¥100

USDJPY Surges - Here are 5 Charts Which Favor a Break of ¥100

David Rodriguez, Head of Product

- Dollar has surged versus the Yen and tests major resistance

- US Treasury yields have likewise surged, the correlation to the Yen remains strong

- We like the USDJPY higher because of yields and a major shift in retail sentiment

The USDJPY trades at critical resistance as it nears the ¥100 mark. Why might it continue higher? Here are five charts that tell the story.

US Dollar Surges vs Japanese Yen and Trades at Critical Resistance

forex_correlations_USDJPY_Breaks_here_are_5_Important_Charts_body_Picture_5.png, USDJPY Surges - Here are 5 Charts Which Favor a Break of ¥100

Source: FXCM Trading Station Desktop, Prepared by David Rodriguez

To understand the USDJPY surge and gauge the likelihood of a further breakout, we take a look at a key driver: yields.

USDJPY Surges and Trades near Critical Resistance as Yields Rise

forex_correlations_USDJPY_Breaks_here_are_5_Important_Charts_body_Picture_6.png, USDJPY Surges - Here are 5 Charts Which Favor a Break of ¥100

Data source: Bloomberg

The correlation between the US Dollar/Japanese Yen exchange rate and the US 10-year Treasury Note yield trades near multi-year highs, and it’s critical to note that yields have broken key resistance.

US 10-Year Treasury Note Yield Breaks Key Resistance at 50-day and 100-day Simple Moving Averages

forex_correlations_USDJPY_Breaks_here_are_5_Important_Charts_body_Picture_7.png, USDJPY Surges - Here are 5 Charts Which Favor a Break of ¥100

Data source: Bloomberg

Viewed from a yields/correlation perspective, we believe the USDJPY may indeed trade on to fresh highs. Adding further conviction to our USDJPY-bullish calls are two factors.

1. The recent surge in US Nonfarm Payrolls figures has forced a material shift in US Federal Reserve interest rate expectations. Treasury yields may have forced a sustained break higher and could take the USDJPY to further highs.

2. A substantial shift in forex trader sentiment may help confirm the USDJPY turn.

Retail Forex Traders Have Sold Aggressively into the USDJPY Rally, Pointing to Further Gains

forex_correlations_USDJPY_Breaks_here_are_5_Important_Charts_body_Picture_8.png, USDJPY Surges - Here are 5 Charts Which Favor a Break of ¥100

Source: FXCM Execution Desk Data

Retail forex short interest in the USDJPY has surged 80 percent since last week and is now at its highest since the pair traded above ¥103 in May. Our sentiment-based Momentum2 system is now long USDJPY from ¥99.06.

We like said position as long as the pair remains above key intraday support at ¥98.90, and it’s likewise worth noting that the Dow Jones FXCM Dollar Index (ticker: USDOLLAR) trades above significant channel and 200-day SMA resistance.

forex_correlations_USDJPY_Breaks_here_are_5_Important_Charts_body_Picture_9.png, USDJPY Surges - Here are 5 Charts Which Favor a Break of ¥100

Source: FXCM Trading Station Desktop, Prepared by David Rodriguez

Obviously any important shifts in price and sentiment could derail our USDJPY-bullish forecast. But in the meantime we like trading it higher. Sign up for future e-mail updates via my e-mail distribution list.

Forex Correlations Summary

View forex correlations to the S&P 500, S&P Volatility Index (VIX), Crude Oil Futures prices, US 2-Year Treasury Yields, and Spot Gold prices.

forex_correlations_USDJPY_Breaks_here_are_5_Important_Charts_body_Picture_10.png, USDJPY Surges - Here are 5 Charts Which Favor a Break of ¥100

Data source: Bloomberg. Chart source: R

SEE GUIDE ON READING THE ABOVE CHART

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com David specializes in automated trading strategies. Find out more about our automated sentiment-based strategies on DailyFX PLUS.

Contact and follow David via Twitter: https://twitter.com/DRodriguezFX

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

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