USDJPY Technical Analysis – Higher Treasury yields revive the carry trade

Fundamental
Overview

The USD continues to reign
supreme despite the lack of catalysts. The main culprit for the recent strength
in the US Dollar has been the rally in long term Treasury yields. The yield
curve is bear flattening which is what you would expect with higher growth and
potentially higher inflation expectations.

The catalyst for this was
the latest FOMC decision and the US NFP report added fuel to the fire. There’s also
been a good argument that the markets are already positioning for a Trump
victory which is expected to strengthen the higher growth and less rate cuts
expectations.

For now, this is the trend
and it’s generally a bad idea to fight such trends without a catalyst. Unfortunately,
we don’t have much left for October as the main events will be in the first
weeks of November when we will get the top tier economic reports, the US
elections and the FOMC decision.

USDJPY
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that USDJPY eventually shot higher and reached the 152.00 handle. This is
where we can expect the sellers to step in with a defined risk above it to
position for a drop back into the 149.40 level, while the buyers will likely increase
the bullish bets into the 160.00 handle next.

USDJPY Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see more clearly the recent price action with a strong push higher in the last
two days. From a risk management perspective, the buyers will have a better
risk to reward setup around the trendline
as today’s move might be overstretched. The sellers, on the other hand, will
look for a break lower to increase the bearish bets into new lows.

USDJPY Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that the price in the Asian session rallied quickly into the upper bound of
today’s average daily range. Chasing the rally at these levels might
not be a good idea. We have a minor upward trendline defining the current
momentum. We can expect the buyers to lean on it to target new highs, while the
sellers will look for a break lower to pile in for a drop into the next trendline.

Upcoming
Catalysts

Tomorrow we get the Flash Japanese and US PMIs, and the US Jobless Claims
figures. On Friday, we conclude the week with the Tokyo CPI report.

See the video below

This article was written by Giuseppe Dellamotta at www.forexlive.com. Source