USD/JPY - Recovery stalls at 38.2% Fib hurdle, yield differential at 1-month high

USD/JPY recovery stalls at 111.41 - 38.2% Fib.
10Y US-Jap spread hits at one-month high, favors upside in USD.

Omkar Godbole FXStreet Contributor

USD/JPY remains bid in Asia but lacks the vigor to cut through 111.41 (38.2% Fib R of Jan. 1 high - Jan. 17 low) despite widening yield differential.

The 10-year US-Japan yield spread rose to 266 basis points today; the highest level since Dec. 21. Also, previous day's bullish outside day candle indicates the pair has likely made a short-term bottom at 110.19.

Further, the Bank of Japan (BOJ) officials believe the ultra-easy monetary policy is needed for now and are of the opinion that the markets have run ahead of themselves. Thus, unwinding of Yen longs may gather pace.

Meanwhile, the USD could remain well bid as the Fed's Beige book (released yesterday) is said to have opened doors for a March rate hike. Kathy Lien from BK Asset Management expects the USD/JPY to extend the rally to 112.00 regardless of today's housing reports and Philadelphia Fed index.

USD/JPY Technical Levels

A move above 111.41 (38.2% Fib R of Jan. 8 high - Jan. 17 low) would expose 111.79 (50% Fib R) and 112.00 (zero levels). On the downside, breach of support at 110.95 (23.6% Fib R) could yield a sell-off to 110.19 (yesterday's low) and 110.00 (psychological support).

	TREND INDEX	OB/OS INDEX	VOLATILY INDEX
15M	Bullish	Neutral	Shrinking
1H	Bearish	Neutral	High
4H	Bullish	Overbought	Expanding
1D	Bullish	Neutral	High
1W	Bearish	Oversold	Low
Updated Jan 18, 02:45 GMT

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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