USDJPY rises off the lows but will it start to follow the yield decline?

The USDJPY has been up 11 of the last 12 days. The close yesterday was at 120.81. With the current price at 121.06, it looks like 12 of the last 13 days is the odds on favorite now.

If you were look at the run higher, one of the major catalysts has been the sharp rise in the yields in the US and the relative stability of the Japan yields.

More specifically, the US 10 year  yield  has been running higher while the JPY 10 year yield is up but hardly as quickly. Looking at the spread, it has soared from 153 basis points to 220 basis points (67 basis points or 44%) since March 7th (see chart above).

Today, the spread has moved lower as US yields retreat. The spread has moved down to around 207 basis points.

Now, looking at the USDJPY, from the March 7 low, the price moved up 651 pips to the high earlier today (see the chart below).

The yield spread chart and the USDJPY looks very similar. Interest rate spreads are driving the USDJPY higher.

Now the  USDJPY  as mentioned did move lower today but it has rebounded and is now higher. Meanwhile, the yields in the US are trading at session lows after the A+ auction of the 20 year bonds.

Should the USDJPY be moving lower too?

There are a lot of things that go into the price action. That is why I like to look at charts and apply tools to the price action.

Earlier today in a post, I took my analysis from the weekly chart all the way down to the 5 minute chart (see post here).

Why?

At turning points, there tend to be “tells” in the short term chart first. The 100 hour MA (and technical tools) are frankly lagging behind after the trend move higher.

Today, earlier in the day the price on the 5-minute chart (see chart below) had fallen below both its 100 and 200 bar moving averages on the 5 minute chart (see blue and green lines), BUT remained above the 38.2% retracement of the last trend leg higher (i.e. from the low on Monday).

In the post from this morning, I commented that if the price could stay below the closing level at 120.81, that would keep the bears in control. However I also mentioned the 100 and 200 bar moving averages on the five minute chart as bullish/bearish barometers. If the price could stay below those moving averages, the sellers would still be in play. It would not be great, but it would be something (they are still in play).

So looking at the five minute chart below, the price did move back above the 120.81 level, and stayed above that level. The price also moved above the 100 and 200 bar moving averages, and stayed above those moving averages (so far).

Are the sellers still in play off those moves?

No. They failed.

if anything, the buyers are more in control above the moving averages.

What would change that bias?

Moving back below the 200 and 100 bar moving averages at 120.98 and 120.917 (and staying below – see blue and green lines).

So, if you think maybe the yields have peaked and the big rotation out of stocks into bonds may start to manifest itself more, what you would like to see is a move back below those 5 minute moving averages on the USDJPY.

That type of break back below, should lead to a rotation back to the downside if all goes to plan.

Conversely, if there is a fake break again like we saw earlier today (i.e. the price moves below the 100/200 bar MAs and then moves back above), then get out.

Remember you are trying to pick a top and that can be difficult. Just ask those traders that have shorted the USDJPY over the last 11-12 trading days.