USD/JPY Forecast: Recovery short lived as the T - yield curve remains flat, bears wait for a close below 110.98

The Dollar-Yen pair dipped to a low of 110.62 on Monday before recovering losses to end the day on a flat note at 111.10 levels. The currency pair extended the overnight recovery in Asia to a high of 111.34 before falling back to 111.05 levels. 

Sustained really requires a steeper treasury yield curve

The chart above shows the Dollar-Yen pair closely follows the spread between the US 10 yr yield and the 2 yr yield (spread also referred to as the yield curve). Thus, it is not surprising that the recovery in the pair from the low of 110.62 ran out of steam in Asia… given the yield curve has not steepened. 

Technicals - Awaits bullish follow through 

Daily chart

• 111.20 (1-hour 50-MA)
• 111.42 (5-DMA) - 111.53 (23.6% Fib R of 114.49-110.62)
• 111.62 (50-DMA) - 111.65 (100-DMA)
• 111.89 (200-DMA)

Support

• 110.98 (61.8% Fib R of 108.80-114.49)
• 110.62 (previous day’s low)
• 110.48 (May 31 low)
• 110.23 (May 18 low)

Comments

• A bullish price action today would add credence to Monday’s long legged doji candle and could yield an upside break of the falling channel, in which case the resistance around 112.32-112.50 could be put to test. 
• On the downside, only an end of the day close below 110.98 (61.8% Fib R+ Gann fan 4x1 line) would mark the continuation of the sell-off from the recent high  of 114.49. The spot could then test bids around 110.00 levels. 

View: Upticks are likely to be short lived as the treasury yield curve remains flat. Risk reversal suggests the sellers may have run out steam… as indicated by Monday’s long legged doji candle.