USD/JPY bulls looking to test corporate offers and key Fibo resistance

  • USD/JPY is pressuring a key technical resistance, testing highest levels since early March business.
  • USD/JPY is currently trading at 111.99 between a range of 112.04 and 111.84.
  • Eyes on trade hopes, stocks and USD/JPY is propped up by wider UST-JGB spreads over parts of the curve.

Global markets are risk positive this week which has lowered demand for the safe-haven yen. EUR/JPY was a major driver on Friday which saw its best daily rise since February 1 and Japanese importers and investors are said to the better buyers on dips in USD/JPY which has seen the pair cross the 112 thresholds, albeit capped by offers from Japanese exporters.

UST-JGB spreads

  • 5yr UST-JGB spread 30/60-day log correlations with USD/JPY are +0.61/+0.58.
  • 10yr UST-JGB spread 30/60-day log correlations with USD/JPY are +0.63/+0.61.
  • 30yr UST-JGB spread 30/60-day log correlations with USD/JPY are +0.53/+0.55.

On the trade front, things are looking up with positive noises out of US-China trade talk negotiations from the weekend. China is considering to reshuffling some of its tariffs off agricultural goods and China is looking to lift a trade ban on poultry and may buy more pork to meet a growing supply deficit. US Treasury Secretary Steven Mnuchin also said that the US is open to agreeing on repercussions for not keeping up its end of any trade agreement, expecting the same from China.  

USD/JPY levels

On a technical basis, USD/JPY has held over cloud support at 111.01 and looks set on the 112.13 March high through the key 112.08 Fibonacci level, a 76.4 percent retracement of the October 2018-January 2019 drop from 114.55 to 104.10. A break there opens 112.43 and the 112.80 2015- 2019 downtrend and December 2018 highs.

"Failure at cloud support is needed to alleviate immediate upside pressure and will re-target the 109.70 recent low. The 109.70 low guards the 38.2% retracement at 109.06 and there is scope for the 50% retracement at 108.11. The base of the cloud lies at 108.11,"

analysts at Commerzbank argued.

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