USD/JPY: Falling with stocks and US yields in decline, marrying-up with WTI oversold conditions
|- USD/JPY has been in free fall with US yields plunging stocks on Wall Street losing.
- USD/JPY technicals have switched to negative, but so long as 112.56 holds, bulls shouldn't panic, too much.
We are seeing volatility higher again on Wednesday with the VIX now registering 21.19, +1.17 (+5.84%) on the day so far. The significance here is that it was down at 16 last week, that is around the same level as the VIX was when USD/JPY has fallen from 114.55 double top highs during the stock market rout.
The DJIA had reached a 76.4% retracement of its early Oct decline on the 7th Nov highs but the index has fallen sharply again down to the 200-D SMA today in an 1171 move to the downside in as little as 4 sessions, so far which is representing its longest string of declines since August 13th and that is going to support the yen on repatriation/risk off flows.
Eyes on oil prices and US yields
As far as other market fundamentals are concerned, US yields have been sliding for about the same number of sessions this month so far. The US 10 years yield has been capped at 3.25% and reached a low of 3.12% on the same day that US CPI has registered a number that is more in line with the Fed's 2% target, down at 2.1%. This ties in nicely with the decline in WTI prices so is something to monitor with regards to USD/JPY's outlook - The weaker the price of oil gets, we might assume lower levels in USD/JPY as well.
"Inflation at a perfect temperature for a 'normalizing ' Fed. Core CPI at 2.1% slips toward the 2% target with the headline number 2.5% heading into a energy price decline. No impact on Fed interest rate policy," -
Joseph Trevisani, Senior Analyst at FXStreet tweeted earlier today.
USD/JPY levels
The longer-term bias for USD/JPY remains bullish, according to analysts at Commerzbank:
- "The cross has risen above the 2015- 2018 downtrend line and now trades above the 55-month moving average at 112.56."
- "Key resistance since mid-2017 at 114.38/73 is about to be revisited but may once again cap, for a few weeks at least."
- "As long as the currency pair remains above the 200-month moving average at 105.01 the December 2016 peak at 118.66 will longer-term remain in sight."
- "Eventually, the 124.14/125.86 area (highs since 2007) could be reached as well."
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