USD/JPY: eyes on US 10-year yield, risks are to the downside

USD/JPY is currently trading at 112.60 with a high of 112.68 and a low of 112.32. 

There were some early moves in a thin market at the start of this week, although Japan is out for today and markets could be equally as quiet ahead given the US holiday as well.  From the weekend, the Japan National Press Club hosted an election debate over the weekend were Prime Minister Abe said he will remain Prime Minister if his coalition retains a majority.

USD/JPY option expiries this week

For this week, eyes will remain on the 10-year US Treasury yield that has been highly correlated to USD/JPY recently. "As the US 10-year yield pullback, the greenback reversed lower against the yen, creating a potential shooting star candlestick pattern," noted analysts at Brown Brothers Harriman.

Eyes on US 10-year yield

Noting that the US 10-year yield rose to 2.40% following the jobs report and then backed off five basis points last week, the analysts at BBH explained that this is the upper end of the range that has prevailed for the past six months.  "We suspect something more than skewed economic data and a December Fed hike is needed to lift yields further.  The beginning of the shrinking of the Fed's balance sheet through not recycling the full amount of maturing proceeds does not appear sufficient either to push yields substantially higher," the analysts argued.   

USD/JPY levels

USDJPY: Short term charts are fairly neutral

Meanwhile, from a technical point of view, the daily chart shows that the risk remains towards the downside, according to Valeria Bednarik, chief analyst at FXStreet:

"Technical indicators resumed their declines within bearish territory, now nearing oversold levels, whilst the 20 SMA accelerated its decline well above the current level, now nearing 0.7900. According to the 4 hours chart, the risk is also towards the downside, as the price settled further below bearish moving averages, whilst technical indicators hover near oversold readings, with no aims of changing course."

AUD/JPY recovers from 1-month low, runs into 50-DMA