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USD/JPY nears five-year highs amid rising US yields

The dollar-yen currency pair conquered the 115 level for the first time in several years. Will the uptrend continue?

The US dollar continued in its bullish trend Tuesday, sending the USD/JPY pair above the 115 threshold for the first time since March 2017.

On Monday, the White House & Joe Biden nominated Fed Chairman Powell for a second term as chairman of the Federal Reserve . Lael Brainard will be vice-chair of the Fed, taking the reins from Richard Clarida, the current vice-chairman, whose time on the board of governors is set to expire in January. Clarida decided to file for resignation in October after allegations of insider trading.

The WH statement read: We can’t just return to where we were before the pandemic, we need to build our economy back better, and I’m confident that Chair Powell and Dr. Brainard’s focus on keeping inflation low, prices stable, and delivering full employment will make our economy more robust than ever before.

As a reminder, the US inflation is at 30-year highs (with the core CPI above 4% and regular CPI above 6% yearly) and shows no signs of easing . Well, for some people, it still may be considered as “low inflation and stable prices.”

US yields shot higher, supporting the USD

The decision was taken hawkishly as investors perceived Lael Brainard more-dovishly , sending the two-year yield to new cycle highs above 0.6% and shifting the market’s expectations for a first rate-hike from July 2022 to June 2022. The market is currently pricing in nearly three full rate hikes in 2022.

The one thing is what the market expects; the other thing is what the Fed will actually do. Usually, it is the same, but even a slightly different hiking schedule could derail the current rally in the greenback.

From other news, the Japanese government announced on Friday that the Cabinet approved a new fiscal stimulus package with spending worth 55.7 trillion JPY . They expect that Japan spending under the stimulus package will likely boost GDP by around 5.6% or 30 trillion yen, with most of the effect appearing in fiscal 2021, 2022.

Later today, the US PMI indices for November are due, expected to continue rising. Lastly, the Richmond Fed Manufacturing Index is seen falling to 5 from 12 previously.

Should the dollar settle above 115, the long-term uptrend could bring the USD/JPY pair toward 118.00, where the bull market after Trump’s victory ended. That is the superior long-term resistance.

On the downside, the support is still seen near 114. As long as the greenback trades above it, the medium and short-term outlooks remain bullish.

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