USD/JPY Volatility Driven by US Treasury Yields and End-of-Year Repatriations

Key Takeaways

• Volatile price action due to US Treasury yields and Japanese end-of-year repatriations
• Market sentiment divided over US Dollar’s strength and potential interest rate cuts
• Japanese Yen expected to be volatile leading up to end of fiscal year

Overview

The Dollar/Yen is edging higher on Wednesday, steadying after a sharp break the previous session. The volatile price action this week is being fueled by a recent rise in U.S. Treasury yields and end of the Japanese fiscal year repatriations.

At 10:21 GMT, the USD/JPY is trading 131.794, up 0.894 or +0.68%. On Tuesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $71.23, up $0.45 or +0.64%.

Dollar/Yen Faces Uncertainty amid Conflicting Market Sentiments and End-of-year Volatility

This week, the Dollar/Yen pair has been struggling to establish a clear trend.

While some investors may think that the Federal Reserve’s potential interest rate cuts in response to the banking crisis could weaken the U.S. Dollar, others may view it as a safe haven during a possible recession.

Meanwhile, the Japanese Yen is expected to be volatile in the lead-up to the end of the Japanese fiscal year on Friday.

The US dollar reached a one-week high against the Yen and rose by 0.9% to 132.096 earlier today. However, the Yen’s recent strength due to its safe-haven status may be diminishing.

U.S. bond volatility has been the main driver of Dollar/Yen volatility. Despite a slight rise to a one-week high of 3.583%, the 10-year U.S. benchmark yield remains relatively stable at 3.556%.

Finally, the Yen seems to be defying market expectations due to end-of-year flows that may be having an imbalanced effect.

Daily USD/JPY Technical Analysis

The main trend is down according to the daily swing chart. However, momentum is trending higher. A trade through 129.641 will signal a resumption of the downtrend. A move through 137.911 will change the main trend to up.

The minor trend is up. It changed to up earlier today. This shifted momentum to the upside.

The nearest support is a long-term Fibonacci level at 131.308, followed by a short-term retracement zone at 130.700 – 130.450. The closest resistance is a long-term 50% level at 132.569.

Daily USD/JPY Technical Forecast

Trader reaction to the long-term Fibonacci level at 131.308 is likely to determine the direction of the USD/JPY on Wednesday.

Bullish Scenario

A sustained move over 131.308 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into 132.569.

Bearish Scenario

A sustained move under 131.308 will signal the presence of sellers. This could trigger a late session intraday break into 130.700 – 130.450.

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