USD/JPY regains poise with recovery in US yields, focus on China’s trade data

USD/JPY is currently trading at 108.53, having charted a higher low at 107.86 on Thursday.

The pair found bids below 108.00 and closed the day with marginal gains at 108.49, leaving a dragon fly doji – a bullish reversal pattern – in its wake, as US treasury yields recovered a major chunk of losses seen following the US Federal Reserve President Jerome Powell’s dovish testimony to Congress. 

Notably, the two-year Treasury yield, which closely tracks short-term interest rate expectations, rose from 1.78% to 1.88%, having dropped nearly 14 basis points from 1.94% on Wednesday. 

The recovery is both yields and USD/JPY indicates the markets are probably done pricing in Fed easing. After all, the two-two-years yield is still down almost 80 basis points on a year-to-date basis, despite having recovered from the recent low of 1.68%. 

With long-tail doji on the daily chart and recovery in yields, the USD/JPY is again looking north. 

A weekly high of 108.99 could come into play today if China’s export and import numbers blow past expectations, alleviating concerns of weak global demand and deeper slowdown in China and triggering a risk-on rally in equities. 

Apart from headline figure, the market would be interesting in seeing if China’s surplus with the US has dropped. An uptick would irk Washington, possibly complicating negotiations between the two nations. 

Japanese industrial production data is also scheduled for release at 04:30 and may influence JPY pairs. 

Technical levels