USD/JPY now closes in on the 114.00 handle
As mentioned last week, unless there is real fear of contagion from Italy, markets are likely to take the news in stride and risk should continue to support a move higher in USD/JPY still. The pair got a bit of a minor bump lower in European trading on Friday but that proved nothing more than a speed bump as the upside momentum continues to hold firm.
Right now, buyers are moving forward to test the 114.00 handle with daily resistance at 113.75 also being eyed. But the key for buyers though will be to take out the longer-term resistance level at around 114.50.
Since May last year, that level has prevented any upside in USD/JPY to go further on three separate occasions. If buyers are able to take out the 114.00 handle, expect a swift move to test the resistance level there.
That’s an important psychological level break as once that gives way, it opens up a move towards resistance levels around 115.50-60 and thereafter, it’s going to be a slippery slope for the yen towards December 2016 and January 2017 high at around 118.66.
Currently, the real backing for USD/JPY comes from Treasury yields. 10-year yields are up another 1.1 bps today to 3.072%. That’s almost 5 bps higher from the lows posted from Friday and once again provides an encouraging sign for buyers should yields continue to track higher as we close out the year.
Furthermore, should yields start breaking towards 3.25% expect a further squeeze in emerging market assets and that will add further tailwind for the greenback against the yen.