USD/JPY Daily Forecast – U.S. Dollar Breaks Higher Against Japanese Yen

USD/JPY Video 07.10.20.

Higher U.S. Government Bond Yields Provide Support To U.S. Dollar

USD/JPY has finally managed to get above the major resistance level at 105.70 and is heading towards 106.00.

The U.S. dollar is losing ground against a broad basket of currencies but USD/JPY ignores this trend as demand for safe-haven yen decreases.

The yield of the U.S. government bonds has recently increased for both 10-year and 30-year bonds, making the U.S. dollar more attractive against other safe haven assets.

As Japan’s bondS yield almost nothing and often drop into the negative yield territory, the recent upside in U.S. government bond yields was a material positive catalyst for USD/JPY.

Currency markets will likely stay volatile after Donald Trump’s decision to stop coronavirus aid package negotiations with democrats. Without a new round of stimulus, traders will likely focus on the upcoming economic reports.

On Thursday, the U.S will provide Initial Jobless Claims and Continuing Jobless Claims reports. Initial Jobless Claims are expected to decline from 837,000 to 820,000 while Continuing Jobless Claims are projected to drop from 11.77 million to 11.4 million.

The market will be worried about the state of the U.S. job market in absence of a new round of stimulus. If the reports are worse than expected, traders will likely increase their purchases of safe haven assets, boosting the U.S. dollar against a broad basket of currencies.

Technical Analysis

USD/JPY moved above the major resistance at 105.70 and developed additional upside momentum. The nearest significant resistance level for USD/JPY is located at 106.30.

In case USD/JPY gets above the resistance at 106.30, it will move towards September highs at 106.55. A move above the resistance at 106.55 will open the way to the major resistance level at August highs at 107.00.

On the support side, the previous resistance at 105.70 will likely serve as the first support level for USD/JPY. If USD/JPY gets below this level, it will test the next support at the 20 EMA at 105.55. A move below the 50 EMA will push USD/JPY towards the next support at 105.20.

For a look at all of today’s economic events, check out our economic calendar.