The Dollar-Yen pair is down 0.95 percent from Monday's high of 113.39 and looks set to extend the decline to 110.00 levels over the next two weeks.
As of writing, the currency pair is trading at 112.30 levels. Despite the sharp rise in the Treasury yields, the spot fell to a 112.17 (one-week low) in Asia. This is because the Asian equities responded negatively to prospects of higher Treasury yields.
The US 10-year yield close above 2.5 percent yesterday (highest close since March). As per "Bond King" Jeffrey Gundlach, a move above 2.63 would open doors for further rise in the treasury yields. Gundlach believes such a move would spook equity markets.
Thus, Japanese Yen (being a funding currency/safe haven) is well bid. The currency could extend gains if the European and US equities turn risk averse. Also helping Yen are fears that the Bank of Japan (BOJ) is moving towards QE taper.
Further, the bearish set up on technical charts shows the bear grip is strengthening.
Weekly chart
The above chart shows-
- Since October, the bulls have consistently failed to cut through the long-term descending trendline.
- The spot has breached the rising trendline. A close below the trendline on Friday would only strengthen the bears.
- The RSI is turning lower in favor of the bears.
The latest rejection at the descending trendline coupled with rising fears of equity market correction is bad news for USD bulls.
Daily chart
- On the daily, we see a bearish doji reversal (Monday's doji + bearish follow through) near the long-term descending trend line hurdle.
- The RSI has turned bearish as well.
View
- The spot looks set to breach the 200-day MA support of 111.77 and extend the slide to 110.00 levels in the short-term.
- On the higher side, only a daily close above 113.39 (Monday's doji candle high) would revive the bullish outlook.
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