- The USD reverts from three-year highs at 113.75.
- The Treasury yield spread is crushing the Japanese yen.
- The USD / JPY rally points to 114.20 – UOB.
The USD pullback from fresh three-year highs at 113.75 touched earlier on Tuesday has found support at 113.45. The pair USD/JPY it bounced back toward 113.65.
With all eyes on US Treasury yields.
The dollar continues to advance against the Japanese yen, driven by rising US Treasury yields amid expectations that the Federal Reserve will soon announce the end of its bond buying program. Yields on US Treasuries appreciated again on Tuesday, with the benchmark 10-year bond hitting five-month highs above 1.60%.
Furthermore, comments from Japanese Prime Minister Kishida this weekend confirming that there are no plans to review the country’s tax on capital gains and dividends, which has raised concerns about capital flows from equity markets, they could have increased the negative pressure on the JPY.
Still, the widening yield gap between the US and Japan, with the BoJ keeping the 10-year yield near zero through a yield curve control policy, is crushing the JPY. The USD has appreciated around 4% over the past 15 days.
USD / JPY: Next target seen at 114.20 – UOB
From a technical perspective, the UOB currency analysis team expects the current uptrend to extend to 114.20: “Momentum suggests that further USD strength would not be surprising. The next resistance is at 114.20. USD strength is considered intact as long as it does not break above 112.40 (‘strong support’ level is notably higher than yesterday’s level of 111.50) “.