USD/JPY drops to 4-day low as Treasury yields drop, yield curve flattens

  • USD/JPY hit a four-day low of 113.18.
  • The 10-year US Treasury yield is down 2 basis points.
  • The yield curve ( the difference between 10-yr yield and 2-yr yield) turned flattest since Oct. 2006.  

The USD/JPY is fast losing altitude, tracking the decline in the US 10-year treasury yield and the flattening of the yield curve.

As of writing, the currency pair is trading at 113.25 levels; down 0.20 percent on the day.

The US 10-year yield failed to cut through the critical resistance of 2.4 percent earlier this week and fell two basis points (bps) to 2.359 percent. The weakness in the 10-year yield is dragging the pair lower.

Further, the yield curve narrowed to 68 basis points; the lowest since Oct. 2007. The flattening of the yield curve is USD bearish and vice versa.

The upbeat Japanese GDP number released earlier today has not had a notable impact on the pair. Ahead in the day, the spot remains at the mercy of the action in the treasury yields. In the US session, US retail sales and inflation numbers could influence the Fed rate hike odds and the US dollar.

USD/JPY Technical Levels

Jim Langlands from FX Charts writes, " As before, given the rather mixed/neutral look of the momentum indicators we could be in for a similar session today and on the downside, support will be seen at 113.20/30 and then again at 112.95/00, below which there is only minor support to be seen ahead of the mid October low at 112.30 although I don’t think we head this far today.

On the topside, minor resistance now lies at 113.70 and at the session high of 113.90, ahead of 114.00 and the 9 Nov high of 114.06. Above here, unlikely today, could return to 114.35/45 and beyond, towards the 114.73, 6th Nov high, but above which could see a test of the descending trend resistance, currently at around 114.90. A break of 115.00 would then see little resistance until 115.20 and then 115.50."

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