USD/JPY: eyes on the 115 handle if 114 can hold, but watch for a potential mean reversion in US yields

• USD/JPY has been sent to the highest levels since Nov 2017 and there are no signs of any let up at this juncture with bulls committed and targetting the 115 knock-out option barrier level.
• That is a level where speculators will likely stick with the trade until we might see some mean reversion in the state of play with respect to US yields skyrocketing to the highest levels since July 2011.

The assumption that it is all to do with the Fed is wrong. If that were the case, we would see a much more activity in the near term bond market compared to the long end. However, we are seeing a sell-off across the spectrum of the curve. For instance,  while the 2yr yield highest since June 2008, the benchmark 30yr long bond is now through 3.25%, also its best level in four years and confirms the end of multi-decade bear yield trend. Instead, while yields can climb due to the extraordinary growth that has been seen in the US of late, fading pension funds no longer actively buying long-dated bonds, (whereby purchases of long-dated Treasuries have thinned down to a trickle) could also be playing a big part in the rise while bearish positioning and bears pouncing on the break of key chart levels overnight would also be playing a part to the steepness of the rise - (Speculators and hedge funds held a record number of short positions, bets on prices to fall, on 10-year note futures as of Sept. 28, data from the Commodity Futures Trading Commission shows).

All in all, USD/JPY has rallied hard into the 114.50's on a rise in US yields and stellar US data and bulls can target the knock out option barrier of 115.

USD/JPY levels

Valeria Bednarik, chief analyst at FXStreet explained that USD/JPY was trading near its daily high of (prior 114.45) 114.55 and is poised to extend its advance according to technical readings in the 4 hours chart:

"Not only the pair gained upward momentum, but also moving averages which anyway remain well below the current level. The Momentum indicator bounced strongly after flirting with its 100 level, while the RSI maintains its bullish slope despite having entered overbought territory. The next big hurdle comes at the 114.70/80 area, where the pair set monthly highs at the end of 2017."