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James Hyerczyk
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USD/JPY

The Dollar/Yen surged to its highest level since June on Friday as remarks from Federal Reserve Chair Jerome Powell and better-than-expected U.S. jobs data drove Treasury yields sharply higher. The move widened the spread between U.S. Government bonds and Japanese Government bonds, making the U.S. Dollar a more attractive asset.

On Friday, the USD/JPY settled at 108.391, up 0.409 or +0.38%.

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Powell set the wheels in motion for the rally on Thursday when he expressed no concern about a recent sell-off in bonds and stuck to his stance of keeping interest rates low for a long time. Powell also said the current jump in Treasury yields was not “disorderly” or likely to push long-term rates so high the Fed might have to intervene more forcefully.

Buyers continued to drive the USD/JPY on Friday after data showed jobs growth beat expectations in February. The news also backed up the view of Federal Reserve policymakers who said the volatility in the bond market is justified by an improving economic outlook.

The jobs improvement came amid falling new COVID-19 cases, quickening vaccination rates and additional pandemic relief money from the government. Meanwhile, the Bank of Japan’s Governor Kuroda said that the BOJ has no need to change its yield guidance.

Daily USD/JPY

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 108.645 will signal a resumption of the uptrend. The main trend will change to down on a move through 104.923. This is highly unlikely, but the prolonged move up in terms of price and time has put the USD/JPY in a position to form a potentially bearish closing price reversal top. This won’t change the main trend to down, but it could trigger the start of a 2 to 3 day correction.

The main range is 111.715 to 102.593. The USD/JPY is currently trading on the strong side of its retracement zone at 108.230 to 107.154. This zone is controlling the longer-term direction of the Forex pair.

The minor range is 104.923 to 108.645. Its retracement zone at 106.784 to 106.345 is another potential downside target.

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Short-Term Outlook

The direction of the USD/JPY early Friday is likely to be determined by trader reaction to the main Fibonacci level at 108.230.

Bullish Scenario

A sustained move over 108.230 will indicate the presence of buyers. The first upside target is last week’s high at 108.645. This is a potential trigger point for an acceleration to the upside with the June 5, 2020 main top at 109.849 the next target.

Bearish Scenario

A sustained move under 108.230 will signal the return of sellers. If this move creates enough momentum over the near-term then look for the selling to possibly extend into the main 50% level at 107.154.

Side Notes

With two major events out of the way:  Powell’s speech and the U.S. Non-Farm Payrolls report, investors may decide to start booking profits and positioning themselves ahead of the March 17 policy announcements from the Fed. Don’t be surprised by the start of a choppy, two-sided trade.

For a look at all of today’s economic events, check out our economic calendar.
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