USD/JPY: capped at 114 handle, Trumpflation trade overdone?


  • Yields are key
  • Trumpflation trade overdone?

Currently, USD/JPY is trading at 113.90, up 0.02% on the day, having posted a daily high at 113.99 and low at 113.87. USD/JPY has sunk a hand full of pips in the Tokyo open while the broader case scenario is dollar bullish as markets maintain the Trumpflation theme. 

Forex today: US yields new highs, dollar firm again, but are the US politics as stable?

However, this is potentially overdone at this stage, especially considering the rumours that started to circulate that three GOP Senators may not support the proposed US tax reform bill, as CNBC reported. Meanwhile, for the near term at least, US yields are elevated and are fundamental to the bull's case for a breach of 114.50 on the upside and for legs towards the 115 handle. 

Yields overnight?

The US 10yr treasury yields broke through the psychological 2.4% level from 2.37% lows to 2.42%, a fresh six month high. 2yr yields were also higher up 0.4%, travelling from 1.56% to 1.59% to make for a nine-year high. Markets are factoring in the Fed fund futures yields that offer a chance of a December rate hike at 99%. 

USD/JPY

Valeria Bednarik, chief analyst at FXStreet explained that the pair is still unable to surpass the high set at the beginning of the week as a result of the Japanese election at 114.09, and from a technical point of view, the bullish potential lost momentum.

"In the 4 hours chart, the price remains above its moving averages, but technical indicators failed to surpass previous highs, currently easing within a positive territory. Given that there are no news scheduled in Japan, the pair will likely keep following the lead of equities, with US Durable Goods Orders being a probable directional catalyst for this Wednesday," Valeria added. 

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