USD/JPY has finally pushed to a fresh cycle high above 109.36 after spending a week or two in consolidation mode. However, economists at TD Securities note that the pair is starting to look stretched against its short-term fundamentals.
“USD/JPY has finally pushed to a fresh cycle high above 109.36. This comes as the pair spent the last week or two consolidating within a trading range loosely capped by the 76.4% Fibonacci retracement level of trading range in place since last year's panic lows (109.23). From here, the next natural reassessment point comes in at the June highs (109.85).”
“We note that USDJPY is starting to look stretched against its short-term fundamentals. The JPY is now the cheapest G10 currency on our HFFV measure by a comfortable margin. At the same time, we note that USD/JPY had been one of the more reliable pairs tracking developments in US real yields. That is, until recently.”
“With the weekly RSI on track to register its first ‘overbought’ reading since the end of 2016, we note that the surge higher in spot has not been confirmed by a similar move in 10Y USD TIPS yields. While we are happy to go with the market's momentum for now, we also recognize that momentum itself may now be the reason that USD/JPY continues to push higher. This is always a fragile situation for a currency, particularly as the end of Japan's fiscal year looms next week.”
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