USD/JPY Forecast: 10-yr T-yield closed at 2-yr high - good news could be short lived
|The benchmark US 10-year treasury yield closed yesterday at 2.626%; the highest level since September 2014. The bullish break is good news for the dollar bulls… although the good news is valid only for a day or two.
This is because, the higher the treasury yield moves ahead of the Fed decision the greater is the probability of the ‘sell the fact’ trade… if the Fed hikes rates by 25 bps and leaves dot plot unchanged (or dovish).
Only a hawkish dot plot - upward revision of the long-term interest rate forecasts and/or four rate hikes in 2017 - could lift both yields and the US dollar even further.
4-hour chart - chipping away at trend line resistance
- A weak follow through after the breach of the rising trend line, coupled with the fact that the RSI is above 50.00 indicates a break above 115.00 (rising trend line hurdle) would open doors for 115.45 (0.618 fib expansion level).
- On the downside, the channel support is seen around 114.28.
Daily chart
- Despite Friday’s retreat from the high of 115.50 to 114.65, the outlook remains positive given the losses have been restricted around 5-DMA and the fact that the 5-DMA and 10-DMA are still sloping upwards.
- Thus, a re-test of 115.45 appears likely ahead of the Fed decision. A daily close above 115.45 would open doors for 116.62.
EUR/JPY Forecast: Spinning top at expanding triangle hurdle
Daily chart
- The bearish spinning top formation at the critical expanding triangle suggests the rally from 118.23 (Feb 24 low) has run out of steam at 122.887 (Mar 13 high).
- A minor corrective move to 121.79 (23.6% fib retracement of 118.23-122.887) could be seen, although further losses are unlikely and the quick recovery could be seen given the daily RSI is yet to hit the overbought territory.
- On the downside, strong support is seen at 121.13 (50-DMA + support offered by the rising trend line drawn from Oct 21 low and Nov 9 low). Only a daily close below 121.13 would signal a top is in place at 122.887.
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