USD/JPY considers dropping as yields, oil slide
Lower Treasury yields amid reduced geopolitical concerns could provide a lasting boost for the yen.
Treasury yields and the U.S. dollar were broadly lower Monday, driven by expectations that Scott Bessent’s nomination as U.S. Treasury Secretary will help the Republican majority push through budget reforms. This newfound optimism has also lifted U.S. equity indices to record highs and reduced measures of market volatility.
Though not as strong as earlier in November, the link between USD/JPY and the 10-year Treasury yield remains robust, with a 20-day rolling correlation above 70%. The drop in yields has also pushed the three-month yen forward premium that incorporate upcoming Fed policy decisions to their lowest levels in two months.
Both yields and USD/JPY could struggle to recover if a ceasefire between Israel and Hezbollah is reached. Oil and gold prices, key indicators of global inflation, are falling as geopolitical risk premiums linked to the conflict diminish. Israel's cabinet is scheduled to discuss the situation on Tuesday.
From a technical perspective, a series of higher lows has USD/JPY potentially closing below its 21-day moving average (DMA) at 153.90 for the first time since September 27. A downward trend will start to develop if the pair falls below the Ichimoku baseline at 152.93 with its conversion line at 155.02 resistance.
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(Robert Fullem is a Reuters market analyst. The views expressed are his own.)
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