USD/JPY Weekly Forecast
The motto of real estate is "place, location, location." Rates, rates, rates is or should be the mantra when it comes to currencies. The value of yields for currency valuation has been obscured and then neglected throughout the pandemic year. However, much like a suppressed desire, the more you resist it, the more intense it becomes.
Since February 22, the USD/JPY has gained 3.8 percent, and this week's losses have been maintained. The most instructive feature of the movements was their timing rather than their course. On Monday, Tuesday, and Friday, when US Treasury rates, especially the 10-year, were at their peak, the upward momentum was greatest.
The 10-year yield reached 1.613 percent and finished at 1.594 percent on Monday, matching the nine-month high of 108.94. The spike to 109.24 on Tuesday started at 1.592 percent and peaked at 1.608 percent before falling in line with the yield. The average ended up at 1.545 percent, with the USD/JPY trading at 108.50. The $38 billion 10-year auctions on Wednesday failed to increase rates as anticipated. The auction averaged 1.523 percent, and the bond ended the day at 1.520 percent, with the USD/JPY at 108.38. The yield was 1.527 percent on Thursday, and the currency pair was 108.57. The yield rose eleven basis points to 1.635 percent (10:30 a.m. EST) on Friday, with the USD/JPY trading at 109.12.
The USD/JPY pandemic trend's sharp turnaround is observational. The economic data in the United States has changed. With yet another massive stimulus package now in place and the pandemic over, the US economy has a lot of room to expand. For the first quarter, the Atlanta Fed GDPNow track is 8.4 percent annualized. The key driver of the USD/JPY has been low Treasury yields, which are far below historical averages. Until anything unexpected happens, the 10-year yield could drop to 2% in the near future. The USD/JPY would rise in lockstep with US interest rates.
The biggest cause of the coming week is the Federal Reserve conference on March 16 and 17. There will be no legislative changes, but the first year's Projection Materials will be published. Any increase in GDP and unemployment forecasts, which is anticipated, would bolster the US economy's optimistic outlook and push the USD/JPY higher. Similarly, retail prices are an indicator of economic performance.
Technically, the USD/dramatic JPY's growth over the last three weeks makes it vulnerable to profit-taking sales in the event of a statistical failure. However, with US interest rates on the increase, any USD/JPY drop would quickly turn into a purchasing opportunity.
Japan statistics March 8-March 12
US statistics March 8-March 12
USD/JPY technical outlook
The USD/reversal JPY's of fortune was exemplified by its close on Friday at 108.35, just ahead of the 61.8 percent Fibonacci of the whole eleven-month pandemic downturn at 108.42. The level was a natural pause after gaining 1.7 percent in one week and 3.1 percent in two, particularly on a Friday in New York, the last market. There was no profit-taking at Monday's resumption, as is common at this retracement after such a fast move. The climb was simply resumed.
Since the logic is so important, technical aspects have been secondary or non-existent in this phase. The US economy is on the verge of a strong rebound. The Federal Reserve plans to encourage interest rates to normalize.
Treasury prices in the United States are also well off their recent highs. From November 2016 to July 2019, the 10-year yield was over 2%, and Treasury yields also have a lot of space to increase. Despite the Fed's efforts to keep the short end of the yield curve from rising, it will do so as soon as the governors allow it.
The USD/JPY would rise in lockstep with US interest rates. Technical levels impinge when the rate motive is weak. The cross of the 61.8 percent Fibonacci on Monday is an example. As the 10-year yield moved between 1.6 percent and 1.52 percent , 108.42 became the base.
The Relative Strength Index is overbought at 77.06, but its usual sell signal at this stage is dependent on US interest rates.