USD/JPY could bounce back to 111.50-111.60 in the next 24 hours or so, if the US 10-year treasury yield breaks out of the falling wedge, confirming a bullish reversal.
As of writing, the USD/JPY pair is sitting on the support of the trendline rising from January lows. Acceptance below that trendline support, currently at 112.27 may invite strong selling pressure. After all, the RSI on the 8-hour chart is reporting a bear flag breakdown, as discussed earlier today.
Technical sellers, however, need to keep an eye on the US 10-year's daily chart, which currently shows a falling wedge pattern.
A break above 2.60 percent would confirm a wedge breakout - a bearish-to-bullish trend change - and open the doors to re-test of and possibly a break above 2.64 percent. That will likely put a bid under the greenback, lifting USD/JPY higher to 110.50 (50-hour moving average).
More importantly, markets are yet to consider the possibility of the Fed sounding less dovish-than-expected. As of now, investors don't expect the Fed to hike rates this year and are pricing in a rate cut for 2020. The Fed, however, could signal one more rate hike for 2019. After all, risk sentiment has improved significantly in the last few weeks.
The markets may reassess their rate expectations, sending the 10-year yield above 2.60 percent in the USD-positive manner ahead of the Fed decision, due tomorrow.
That said, if the US 10-year finds acceptance under 2.58 percent, then USD/JPY could suffer a deeper drop toward 110.75-110.70 ahead of the Fed.
US 10-year treasury yield's daily chart
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