USD/JPY: 110.50 untouched, bulls anchored on geopolitical set backs

  • USD/JPY: bulls struggle to gain traction much above the 200-D SMA.
  • USD/JPY: risk aversion remains in play and plenty of uncertainties anchor the pair.

USD/JPY has opened in Tokyo and looks heavy. USD/JPY is currently trading at 110.34, with the 200-D SMA potentially supportive on dips at 110.17. USD/JPY bulls have been able to break out of the 200-D SMA/110.45 highs scored yesterday while the dollar takes a breather despite 10-year yields rising to a fresh high since 2011 at 3.10%. 

Instead, USD/JPY probed lower in the risk-averse London morning, testing the 110.05 level for a break below 110.00. However, bulls are at least committing to the 110 handle and the market switched back to yield spread differentials.

The underlying motivation stays with the divergence between the BoJ and Fed. Fed fund futures yields continued to price two more hikes this year (one in June) plus about 40% chance of another (which would be one each quarter) while, in stark contrast, the markets believe that the BoJ will not change anything about its monetary policy for the foreseeable future.

Risk aversion to keep the pair anchored near-term

However, there are mounting concerns over N.Korea and Iran. N.Korea evidently do not wish to commit to adhering to the US demands for denuclearisation and have subsequently threatened to pull out of next month's historic summit that had been planned to take place between Trump and Kim Jong-un in Singapore. 

USD/JPY levels

USDJPY: Buying dips towards 109.80/110.00

Valeria Bednarik, chief analyst at FXStreet explained that according to technical readings in the 4 hours chart, as the pair remains firmly above bullish moving averages and a daily ascendant trend line, while technical indicators keep retreating from overbought levels:

"A corrective movement could come with a break of 110.00, exposing then the 109.60, where the next line of buyers is waiting."

 

 

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