USD/JPY Fundamental Daily Forecast – A Surge in Treasury Yields Could Spike Dollar/Yen Higher

The Dollar/Yen is trading higher shortly before the U.S. opening. The widening spread between U.S. Government Bond yields and Japanese Government Bond yields is making the U.S. Dollar a more attractive asset.

At 1107 GMT, the USD/JPY is trading 109.889, up 0.246 or +0.23%.

U.S. government debt yields are up on Tuesday, as investors awaited the release of Treasury Department auctions.

The yield on the benchmark 10-year Treasury note was higher at around 3.0208 percent, while the yield on the 30-year Treasury bond was also higher at 3.1509 percent.

The U.S. Treasury is scheduled to auction $45 billion in four-week bills Tuesday.

Forecast

The early rally in the USD/JPY has put the Forex pair in a position to take out last week’s high at 110.012 and the main top at 110.028. A trade through the latter will signal a resumption of the uptrend on the daily chart. This would put the Dollar/Yen on a path toward the February 2 top at 110.477. It is also trading inside a long-term retracement zone, bounded by 109.664 and 110.859.

Strong demand at the auction could drive yields even higher and this would be bullish for the USD/JPY.

Traders will also get the opportunity to react to the U.S. retail sales report, due to be released at 1230 GMT. Core Retail Sales are expected to come in at 0.5%, up from 0.2%. Retail Sales are expected to rise 0.4%, down from 0.6%.

Minor reports include the Empire State Manufacturing Index, Business Inventories, the NAHB Housing Market Index and the TIC Long-Term Purchases. FOMC Member Williams is also scheduled to speak at 1645 GMT.

Look for rising Treasury yields to continue to drive the USD/JPY higher. Stronger than expected retail sales will be supportive as well as any talk that supports the possibility of a trade deal between the United States and China.

We could be coming close to a surge in Treasury yields. This could spike the USD/JPY higher.