Originally published by AxiTrader
USD/JPY is higher than it was a week ago. But it's below Friday's 115.50 high as US dollar bulls seemed to demure, along with bond bears, from actively repricing the divergent economic and central bank policy outlooks between the United States and japan - among other nations.
But US bonds opened the week with higher rates as both the 2's and the 10's march higher. That's driven the US-Japan bond spread wider suggesting further upward pressure on USD/JPY.
yet even as the Fed signals it is going to start a series of hikes in 2017 this week, and even as the Bank Of Japan continues to keep a lid on Japanese rates through its enduring QE program USD/JPY remains trapped below Friday's 115.50 high.
That level fits neatly with what looks like the top of the range USD/JPY has been in since around mid-January.
But the relative merits of each economy and future central bank policy settings has at least kept the bulls with the upper hand.
So if the FOMC is as forthright in its outlook for the US economy as Fed speakers were in repositioning market expectations about a rate hike this week then there is room for another big adjustment higher in the US dollar.
Naturally, the BoJ's decision on Thursday is not without import. But it strikes me that their current policy settings - abandon monetary base targets and sit on the 10 year yield regardless of uptick in the economy or inflation - was expressly designed with the current global reflation in mind. So I'm not expecting any changes.
Which brings me back to the level I'm watching at 115.50/60. If it breaks USD/JPY can run - but it has to break 115.50/65 first. If on the other hand 115.50/60 holds then the chances of a reversal - potentially a very sharp one - in USD/JPY grows.
In the run up to the Fed support is currently around 114.00/20 - that's the 13 day ema I use as part of my trend direction determinations.
Have a great day's trading.