USD/JPY Forecast: Ignores spike in super long JGB yields, bullish DMI crossover

Omkar Godbole FXStreet Contributor

The Dollar-Yen pair found support at 112.62 (descending trend line) on Friday and edged higher to 113.13 levels in dull trading on Monday. The spot has extended gains in the Asian session today to 113.66 levels.

Super long JGB yields spike

The 30-year Japanese government bond (JGB) yield rose from 0.856% (Feb 13 low) to one-year high of 0.925% today. On similar lines, the 40-year yield has rallied from 1.008% to 1.082%. Moreover, markets believe the Bank of Japan (BOJ) would tolerate the rise in the super long JGBs.

Meanwhile, the benchmark 10-year yield has remained flat between 0.088% to 0.10% level over the same period.

Historical data suggest the Yen closely follows the 10-year yield rather than the super long JGB yields. This explains the rise in the USD/JPY in the face of the super long JGB yields.

In the US, the treasury yields continue to remain resilient in anticipation of a fiscal spending plan. However, the weekly chart of the 10-year treasury yield shows repeated failure to close the week above 2.5%. Last week’s candle was a Gravestone Doji, which suggests potential for a strong pullback. Hence, Dollar bulls need to be cautious as long as the spot is below the 50-DMA level of 114.93.

Technicals - Bullish above 50-DMA

Daily chart

The rebound from the descending trend line support on Friday if followed by a daily close above 50-DMA of 114.93 would add credence to the bullish DMI crossover and open doors for a rally to 118.66 (Dec 15 high).
The ADX is sloping downwards, suggesting a weak momentum. Thus, there is need to be cautious so long as the spot is below 50-DMA.
On the lower side, breach of the session low of 113.11 could yield a pull back to trend line support around 112.34. Note that such a move would lead to another failure on the part of the RSI to break above 50.00 levels.

AUD/USD Forecast: Bearish rising wedge breakout likely

Daily chart

Bearish price RSI divergence on the daily chart coupled with a failure to see a weekly close of 0.77 points to increased likelihood of a bearish break from the rising wedge formation. Such a move would open doors for a strong pull back to 0.76 – 0.75 (200-DMA) levels.
On the higher side, only a weekly close above 0.77 handle would shift risk in favor of a rally to 2016 high of 0.7835.

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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