- USD / JPY is trading moderately just below 115.00 after Monday’s rise above 114.50.
- A timed rally in risk assets on Monday weighed on the yen at time of writing.
- For USD / JPY to test yearly highs at 115.50, long-term US yields will likely need to rally a bit more.
The USD/JPY It is trading moderately on Tuesday, below but not far from the 115.00 level, after Monday’s risk appetite-driven surge pushed it above 114.50. The pair has retraced from session highs at 114.95, but found decent support at 114.70 and is now trading at 114.85. Currency market conditions are unusually subdued this Tuesday due to market closures in various parts of the world and generally low liquidity / volumes, with many market participants based in Europe and North America absent for the Christmas and New Years celebrations. New in progress.
The momentum of Monday’s rally from lows of 114.30 to session highs around 114.90 saw a surge in US (and global) stocks, as well as crude oil and other commodity prices. Traders are much more optimistic about the rapid spread of the highly contagious variant of Omicron Covid-19 around the world, as governments in Europe (UK, France, Spain) refrain, for now at least, from tightening. Covid restrictions with hospitalization rates that have not yet increased. That has raised hopes that the variant will prove less damaging than previously feared for the US (and global) economy in the coming months.
Unsurprisingly, the surge in risk appetite sentiment weighed on demand for the safe-haven yen, which at the time of writing this article was underperforming across the board against its G10 counterparts. But USD / JPY seems reluctant to push above 115.00 and move towards a test of its November highs at 115.50. This is because despite the recent surge in stocks and other risk-sensitive assets, long-term US bond yields have yet to join the party. The US 10-year yield continues to trade moderately below 1.50% on Tuesday, still leaving it some 20 basis points below pre-Omicron levels. USD / JPY is highly correlated with the US 10-year yield, so for the pair to test its yearly highs around 115.50, the 10-year yield will likely need to rebound, which seems little. likely to happen before 2022, with bond markets in holiday mode.
Technical levels
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