The USD/JPY's strength is being driven by higher Treasury yields, reduced expectations for Fed rate cuts and safe-haven demand.
The Dollar/Yen is edging higher on Thursday, testing its highest level since November 30.
At 10:00 GMT, the USD/JPY is trading 139.545, up 0.178 or +0.13%. On Wednesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $66.80, down $0.39 or -0.58%.
This upward movement is fueled by several key factors driving the dollar’s strength. Firstly, higher Treasury yields have widened the spread between U.S. Government bonds and Japanese Government bonds, making the dollar a more appealing asset compared to the yen.
Additionally, expectations for Federal Reserve rate cuts have been reduced as the U.S. economy has shown resilience in the face of the central bank’s aggressive tightening campaign. Money market traders have adjusted their predictions, now anticipating only a quarter-point rate cut in December instead of the previously projected 75 basis points.
Moreover, a hawkish stance from several Fed officials, supported by consumer inflation running above the 2% target, has further boosted the dollar. Odds for another quarter-point rate hike in June have increased to about 1-in-3.
In the short term, the outlook for the dollar remains bullish. Market sentiment has shifted over the past two weeks in favor of the dollar, with the expectation of further upward movement.
Additionally, amidst the ongoing debt ceiling standoff in the United States and concerns about economic slowdowns in China and Europe, there has been an increased demand for safe-haven assets, providing additional support for the dollar.
There is a potential for the dollar to experience a further 2% upward movement, and the recent negative watch on the United States’ “AAA” debt ratings by Fitch could potentially act as a trigger for this increase.
In conclusion, the dollar’s strength against the Japanese yen is driven by higher Treasury yields, reduced expectations for Federal Reserve rate cuts, and increased demand for safe-haven assets.
In the short term, a bullish outlook is expected, with the potential for the dollar to rise by an additional 2%. However, the final decision on rate hikes will depend on upcoming data, particularly regarding inflation trends.
The USD/JPY is hovering near its highest level since November 30 after overcoming 138.452 (R1). This level is new support.
A sustained move over 138.452 (R1) could generate the momentum needed for a near-term surge into 140.498 (R2).
A sustained move under 138.452 will signal the return of sellers. However, as long as 134.518 (PIVOT) remains intact, the long-term bias will be to the upside.
Resistance & Support Levels
S1 – 132.471 | R1 – 138.452 |
S2 – 128.537 | R2 – 140.498 |
S3 – 126.491 | R3 – 144.432 |
James Hyerczyk is a U.S. based seasoned technical analyst and educator with over 40 years of experience in market analysis and trading, specializing in chart patterns and price movement. He is the author of two books on technical analysis and has a background in both futures and stock markets.