USD/JPY Forecast – Two-yr Treasury yield to keep Yen under pressure

USD/JPY Forecast – Two-yr Treasury yield to keep Yen under pressure

USD/JPY pair rose to an intraday high of 102.39 levels on Monday before ending the day on a weaker note at 101.91 levels. A bout of profit taking was triggered by US data, which showed the savings rate jumped for the first time in July since March. US personal spending and income data matched estimates (0.3% m/m and 0.4% m/m).

Rise in savings rate is net negative and highlights a bigger problem for the consumption driven US economy. The data released a couple of days after Fed’s Yellen said the case for rate hike strengthened.

In response to the data, the two-year treasury yield dropped from 0.85% to 0.80% and currently trades around 0.817%. No wonder, the Dollar-Yen pair suffered a weak day end close.

USD/JPY lags 2-yr treasury yield

However, the 2-yr treasury yield has rallied at least 30 basis points from the Brexit day low of 0.50%. at the time of writing, it trades around the highest level since early June. Dollar-Yen pair, which closely tracks the 2-yr treasury yield, is lagging behind. The spot is still only about 300 pips higher from its Brexit day low of 98.79. Given the BOJ exhaustion has been priced-in and the fact that Yellen opened doors for a move in December, the pair has ‘catch up’ job to do, which means we could see prices test and breach 50-DMA hurdle of 102.68. Strong US non-farm payrolls figure and wage growth number on Friday would only add credence to the bullish view. Unless there is significant deterioration in the equity market sentiment the pair is not seen breaching 100.00 levels.

Techncials – Bullish tone intact

Daily chart

• Despite dollar’s retreat from yesterday’s high of 102.39 the overall bias following a sharp rally on Friday above 100.71 remains bullish.
• Thus, pullback to 5-DMA levels is likely to be met with fresh buying interest. Once 102.39 is breached, the spot is likely to test 50-DMA hurdle of 102.68.
• A rally following a smart rebound from 5-DMA could end up breaching 50-DMA on day end closing basis.
• On the lower side, only a day end close below 100.71 (50% of 2011 low – 2015 high) would indicate bullish invalidation, while fresh sell-off is likely below 100.00 levels.

AUD/USD Forecast: At key trend line hurdle ahead of Building approvals release

Aussie recovered from the low of 0.7525 levels on Monday to post an intraday high of 0.7581 before ending the day at 0.7567. Sharp rise in the US savings rate and the resulting drop in the treasury yields weakened the US dollar across the board. The currency pair currently trades around 0.7567 levels.

Australian Building Approvals is scheduled for release in few minutes. The indicator is expected to rebound to 1.2%. The recent construction sector numbers have been soft. Australian HIA Home Sales plunged 9.7% in July, while Construction Work Done plunged in second quarter. In case, the building approvals figure disappoints expectations, yesterday’s low of 0.7525 levels could be put to test again.

Technicals – Rejection at trend line hurdle could prove fatal

Daily chart

• Pair’s failure to regain rising trend line on Monday followed by a rejection at the same in Asian session today amid bearish daily RSI and MACD indicates the currency is likely to breach 50-DMA support of 0.7562 and re-test demand around 0.7525 (yesterday’s low) and 0.75 levels (zero figure + 100-DMA).
• On the higher side, only a day end close above rising trend line would suggest bearish invalidation.

NZD/USD Forecast: Strong resistance of 5-DMA

Daily chart

• Pair’s large bearish inverted hammer candle formation on Friday followed by a failure to take out 5-DMA hurdle today amid bearish daily MACD indicates fresh sell-off to 0.7210 (Monday’s low) and 0.7173 (50-DMA) is likely.
• On the higher side, only a day end close above 0.7330 (38.2% of 2009 low – 2011 high) would suggest bearish invalidation.