The US 10-Year Yield and USD/JPY correlation is back!

The US 10-Year Yield had been rising since August 2^ndin an ascending wedge formation until it broke above the top trendline, making a high on October 21^st at 4.335%. As often is the case, when price (or in this case yields) fail to hold a breakout on one side of the pattern, it often moves to test the opposite side. The key US yield finally broke below the bottom of trendline of the pattern on November 10^th, 2022, and moved aggressively lower (recall that on November 10^th, 2022, the US released a very weak CPI print. Since then, US 10-Year Yields have traded in a range between 3.321% and 3.90%. The 50% retracement from the low of August 2^nd, 2022, to the high of October 21^st, 2022 is 3.426%, however, it has acted as support multiple times for the benchmark yield.

Source: Tradingview, Stone X

On a 240-minute timeframe, yields are currently within the previously mentioned range near 3.80%. If yields break prior highs at 3.90%, they will have formed a double bottom pattern. The target for a double bottom is the height from the bottom to the breakout point, added to the breakout point. In this case the target is above the October 21^st, 2022 high, near horizontal resistance from 2007 at 4.473%.

Source: Tradingview, Stone X

Below is a daily chart of USD/JPY. In the bottom panel of the chart is the correlation coefficient between USD/JPY and US 10-year yields. The current correlation coefficient is +0.93. Readings above +.80 are considered statistically significant. A reading of +0.93 means that when US yields move in one direction, there is a strong correlation and USD/JPY should move in the same direction. A reading of +1.00 is a perfect correlation and indicates that the two assets move together 100% of the time. Notice that the correlation has only recently moved back into relevant territory on February 13^th. Prior to this, the two assets haven’t been correlated in 2 months!

Source: Tradingview, Stone X

USD/JPY has also been trading in a range since mid-December 2022 between 127.22 and 134.50. The pair recently has broken above channel resistance, a downward sloping trendline dating to December 15^th, 2022, and the 50-Day Moving Average. If USD/JPY moves above recent highs at 134.77 (most likely with a move higher in 10-year yields), there is a confluence of resistance at the 38.2% Fibonacci retracement from the October 21^st, 2022, highs to the January 16^th lows and the 200-Day Moving Average between 136.66 and 136.85. Above there is horizontal resistance at 138.35 and then the 50% retracement level from the above-mentioned timeframe at 139.58. However, if US yields move lower, it may pull USD/JPY lower with it. First support is the 50-Day Moving Average at 132.02. Below there, the pair can fall to the February 10^th lows at 129.80, then the downward sloping trendline near 129.30.

US 10-Year Yields and USD/JPY currently have a strong correlation coefficient of +0.93. Readings above +0.80 are considered strong. Therefore, to get a better idea of where USD/JPY may be headed, keep an eye on US yields. If they move higher, USD/JPY is likely to move with them. However, if yields pullback, watch for USD/JPY pull back as well.

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.