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USD/JPY Rate Forecast:  Yen Nears 4-Month Low As UST Yields Jump

USD/JPY Rate Forecast: Yen Nears 4-Month Low As UST Yields Jump

2018-05-17 18:00:00
Tyler Yell, CMT, Currency Strategist

USD/JPY Rate Forecast Talking Points:

  • The ONE Thing about USD/JPY: A parallel shift higher in the US Yield curve makes a long USD/JPY trade attractive. US Treasury yields extended their gains with the rate on the UST 10Yr to 3.1% and the US 30Yr yield hitting the highest level since 2015 as the sovereign bond selloff escalates on inflation fears. Such an environment tends to align with a rising USD/JPY.
  • USD/JPY Price Forecast: USD/JPY looks set to test and likely break 112 if the current higher yield/ rising commodity environment holds. USD/JPY is trading at the highest levels since late-January before the VIX/ risk heart-attack took risk assets lower and havens like JPY higher. Across the board on Thursday, the JPY was lower and support on USD/JPY looks safe at 109.80-108.90, which is comprised of Ichimoku trend support.
  • Options market insight shows bears are losing the faith in a strong JPY.
  • Markets continue to shrug off any signs of risk-off sentiment created around the uncertainty of North Korea’s summit, Italian elections, or rocky NAFTA negations, which were previously seen as supporting JPY strength.

See what we see when looking at the Japanese Yen. Check out our new Q2 Yen Forecast here.

Long-Term USD/JPY Chart Shows Trendline Resistance Approaching At 112

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Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

Technical Levels on USD/JPY:

Resistance: 111.50/62 (2015 Trendline resistance, 50% retracement of 2015/2018 range)

Spot: 110.80

Support: 109.83/108.92 (Ichimoku 9-&26-day midpoint)

The support point in focus can best be seen through Ichimoku applied on the daily chart. The focal level is the 9- & 26-day midpoint at 109.84/108.92 respectively. Shorter-term support can be found on the hourly Ichimoku chart at 110, where the base of the cloud currently sits.

New to Ichimoku? Click here for a free guide if you’d like to learn more

Insight from Options Support USDJPY Higher

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Data source: Bloomberg

The JPY continues to fall as USD/JPY pushes higher. USD/JPY is up 1% over the last four days, and the options market shows that JPY bulls (USD/JPY bearish) are no longer willing to pay the premium that out of the money puts relative to calls to protect against potential JPY strength.

The 1-month 25-delta risk reversal is showing the highest ratio (though still negative as is common with JPY crosses) since early January when USD/JPY was a few hundred pips higher.

More Trading Support for You:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q2 have a section for each major currency, and we also offer an excess 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 popular and free IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a surplus of helpful trading 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 feedhas 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 Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.

Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.

Discuss this market with Tyler in the live webinar, FX Closing Bell, Weekdays Monday-Thursday at 3 pm ET.

Talk markets on twitter @ForexYell

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