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.
Open an account
☰
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.
Open an account
✖

USD/JPY, Nikkei 225: Yen Slides, Equities Eye Breakout on Rising US Yields

Article By: ,  Market Analyst
Today 11:59 PM
  • USD/JPY hits fresh highs as US yields spike
  • Yen weakness push Nikkei 225 futures towards key resistance
  • Fed and BoJ rate decisions on Wednesday and Thursday respectively
  • Bullish setups emerge for both USD/JPY and Nikkei 225 futures

Overview

The upside move in benchmark US Treasury yields anticipated in last Friday's USD/JPY outlook has materialised, lifting the pair to fresh weekly highs. The tight interplay between technicals and correlations remains intact, despite the backdrop of significant risk events. This dynamic offers a potential framework for setups in the coming week.

The yen's weakness has also caught the attention of Nikkei 225 traders. Improving corporate earnings prospects are beginning to counterbalance concerns about US President-elect Donald Trump's proposed tariff measures, generating near-term tailwinds for Japanese equities.

Bond bloodbath boosts USD/JPY bulls

Last week was a bloodbath for US bonds, especially at the long end of the curve. Benchmark 10-year Treasury yields spiked 24.6bps, sending them to within touching distance of the highs struck immediately after Donald Trump’s victory in the US Presidential election.

Source; TradingView

A 16bps reduction in the scale of rate cuts expected from the Fed by the end of 2025 may have been a factor, helping to lift yields further out the curve in anticipation of a hawkish cut on Wednesday, but technicals arguably provided the clearest signal on the looming lift in yields.

Technical tea leaves prove accurate

You can see that in the 10-year US Treasury note futures chart, with losses accelerating last week as the price broke through the 200-day moving average and uptrend support dating back to November 15. The rout subsequently stalled at known horizontal support on Friday, further bolstering the message coming from technicals.

Source: TradingView

With RSI (14) and MACD generating bearish signals, the path of least resistance comes across as lower, not higher. At the very least, selling rallies and bearish breaks is preferred near-term.

Note the strong inverse correlation between benchmark Treasury futures and USD/JPY in the bottom pane, sitting at -0.92 over the past month. As price moves inversely to yields, the readthrough is USD/JPY remains highly influenced by the US interest rate outlook.

USD/JPY takes out another resistance level

Source: TtradingView

With US benchmark yields pushing higher, it’s fuelling USD/JPY upside, seeing  the price take out resistance at 153.38 on Friday after doing away with the 50 and 200-day moving averages earlier in the week. With RSI (14) and MACD providing bullish signals on momentum, the bias is to buy dips and bullish breaks.

The move above of 153.38 provides a bullish setup for those seeking ideas, with potential pullbacks towards the level allowing for longs to be established with a tight stop beneath for protection. Possible topside targets include 155.89 and 156.75.

If the price were to reverse back through 153.38, potential short setups don’t screen as particularly appealing with the key 200-day moving average located nearby. Unless you’re an intraday scalper, the risk-reward looks skinny.

Nikkei bulls eye range break

The bullish break in USD/JPY may be starting to influence Nikkei 225 futures with the rolling correlation between the two strengthening to 0.75 over the past fortnight, a level only seen once over the past two months.

Nikkei futures have been rangebound for months, limited by buying support below 38000 on the downside and sellers parked above 40000 on the topside.

More recently, however, futures have pushed towards the top of the range, finding support at 39000 and a minor uptrend dating back to late November. With RSI (14) and MACD signalling building topside momentum, traders should be alert for a bullish breakout in the short to medium-term.

Source: TradingView

The uptrend is found around 39450 today, close to where the price closed on Friday evening. If it were to hold, traders could look to buy above it with a tight stop beneath for protection. The price has run into sellers above 40000 the past five times it’s ventured there, making that an obvious initial target.

Alternatively, if the price were unable to hold the uptrend, the bullish bias would be void, allowing for setups to trade the existing range with support located in between at 39000.

Now read: USD/JPY weekly outlook: Fed and BoJ decisions to ignite FX market volatility

-- Written by David Scutt

Follow David on Twitter @scutty

 

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.

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.

© FOREX.COM 2024