1.34 -0.6%
    144.37 0.26%
    0.88 -0.16%
    1.09 0.55%
    1.24 0.71%
    0.68 1.51%
    132.42 -0.28%
    0.63 0.67%
    0.91 -0.26%

USD/JPY holds 6-year highs

Today, the USD has been on a tear, as the situation in Ukraine failed to improve, US yields jumped, and the markets focused on the Fed and soaring inflation.

Traders continued to push the pair higher as the rally seems unstoppable now. Ahead of the US session, the USD remained above the 119 threshold.

The situation in Ukraine has failed to improve over the weekend. In a statement on Monday, the Kremlin said there is no basis for a possible Putin-Zelensky meeting, as there needs to be significant progress made first.

More info from the statement:
– Russia is ready to work faster on negotiations than the Ukraine side.
– No agreements have been reached yet in Ukraine negotiations.
– Progress in Ukraine talks ‘less than we would like’.
– EU embargo on Russian oil ‘would hit everyone.’

However, it looks like the markets are more focused on the Fed and soaring inflation, than the war in Ukraine (at least for now).

Hawkish Fed and rising yields

Later today, Federal Reserve Chair Jerome Powell is due to speak about the economic outlook at the National Association for Business Economics Annual Economic Policy Conference in Washington DC. His remarks could cause some volatility as he will likely confirm that the economic outlook has deteriorated, mainly due to soaring inflation, rising yields/rates, and the war in Ukraine.

From other news, US yields jumped again today, pushing the 2-year yield above 2%, and the 10-year was seen above 2.23% for the first time since August 2019. As long as the 10-year yield trades above 1.95%-2.0%, the uptrend should remain intact.

Also read:

Higher yields are usually beneficial for the USD/JPY pair. Since the Bank of Japan has pledged to keep monetary policy accommodative, while on the other hand, the Fed is expected to deliver several more rate hikes this year, it could keep the pair under buying pressure.

“While BoJ is looking increasingly left behind with rate differentials widenings, we note the renewed bounce in oil prices may be another negative for JPY. Japan’s current account should suffer as JPY-denominated oil price has jumped sharply and holds a tight correlation with monthly import costs, which are also set to rise.” analysts at Citibank said today.

Daily chart overbought

Recently, the break above the triangle pattern’s resistance line at 116.25 has led to a strong rally of 300 pips. However, the pair now seems overbought, raising odds for a correction.

The short-term support is near 118, while the key medium-term demand zone is expected at 116.25. Alternatively, the resistance will likely be at the psychological level of 120.

USDJ/PY daily chart, Source: Author´s analysis,

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