USD/JPY: Mnuchin-led rally has stalled, what’s next?

Omkar Godbole FXStreet Contributor

The Dollar-Yen pair is trading flat around 109.35 this Friday morning in Asia as Asian investors are yet to be sold on US Treasury Secretary Mnuchin’s promise to deliver the tax reform ‘soon’.

Stuck at 38.2% Fib retracement

The bid tone around the USD strengthened in the overnight trade, as the 10-year treasury yield climbed to 2.26%. However, the bullish move lacked vigor to chew through the resistance at 109.45 (38.2% fib retracement of 111.58-108.13). The pair clocked a high of 109.49, but ended the day at 109.31.

Mnuchin said that the treasury is working on tax reform options “day and night”, and the plan will be unveiled “soon, very soon”. Once again the comments were conveniently short on specifics. The vague positive promises is not a new thing for the markets and the investors no longer hang on to every word said by Trump & Co. as they did a couple of months back.

Moreover, the jump in the USD/JPY pair was more of a technical correction, given the oversold nature of the indicators.

The risk sentiment appears to have stabilized following a 0.85% rise in the Dow 30 index. Thus, Yen bulls may remain on the sidelines. That said, it is still too early to call a bottom as the dollar bulls would love to see a sustained rise in the treasury yields.

USD/JPY Technical Levels

A break above 109.45 (38.2% fib retracement) would open up upside towards 109.86 (50% fib retracement) and 110.09 (Apr 7 low). On the lower side, breach of the downward sloping 10-DMA seen at 109.20 could yield a re-test of 108.94 (10-DMA) and 108.77 (200-DMA).

	TREND INDEX	OB/OS INDEX	VOLATILY INDEX
15M	Bullish	Neutral	Low
1H	Bullish	Neutral	Shrinking
4H	Bearish	Neutral	Expanding
1D	Strongly Bearish	Neutral	Expanding
1W	Bearish	Neutral	Low
Updated 154 GMT

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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