Strong performance for the JPY looks to be unwinding

  • Bond yields have ticked higher as sentiment settles: Higher yields are negative for JPY performance 
  • Positive risk bias on major forex: The commodity currencies (AUD and NZD) are outperforming on major forex, although JPY has reclaimed some lost ground too.
  • Equities continue to rally: European indices are higher again, with US futures c. +0.2% in early moves.
  • A positive risk bias to metals and oil: In commodities, there are decent gains on silver, with gold also higher and oil building on the recent rally.

As banking concerns ease, focus could turn to inflation

The lack of any new bad news in the US banking crisis means that investors are seeing their concerns ease. 

Volatility continues to reduce, a sign that market sentiment is settling down.

If concerns over the banking crisis are easing, then the focus could switch back towards another significant issue, fighting inflation.

This is all helping to pull bond yields higher again, and that means some changes in the outlook on forex markets.

Another shift in major forex is threatening

There seems to have been a shift in the performance of major currencies in recent days.

Some themes are developing:

  • European majors (EUR, GBP and CHF) continue to perform well
  • Commodity currencies have picked up – CAD especially as the oil price has rebounded
  • A dramatic turn lower in the performance of the safe haven JPY 

There seems to have been a shift in the performance of major currencies in recent days.

The deterioration of the JPY is the most stark mover in the past two weeks.

The JPY has gone from the best performing major currency to the worst, in just under a week.

The increase in US yields is weighing on JPY

This underperformance of JPY has come as US yields have moved higher.

Here we see the rebound in the US 2-year Treasury yield in recent days.

The US 2-year yield is now into a key pivot area. A continuation of the rebound above 4.25% would be significant.

The US 2-year yield is now into a key pivot area. A continuation of the rebound above 4.25% would be significant.

This is a big barrier and it could be broken if the Fed begins to point towards one more rate hike which is not currently expected.

Japanese Government Bond (JGB) yields barely budge. The yield curve control of the Bank of Japan sees to that.

So, the moves in US yields tend to be the driver of the yield differentials. The difference between US Treasury yields and JGB yields is a key driver of moves on USD/JPY.

Japanese Government Bond (JGB) yields barely budge

Note how the dip lower in the yield this morning is helping to support the JPY.

However, if the calming market sentiment pulls US yields higher, then USD/JPY is likely to pull decisively higher once more.

JPY strengthening threatens to reverse

The unwinding of previous JPY strength is impacting the outlook of JPY pairs.


Dollar/Yen rebounded sharply yesterday to break a three-week corrective downtrend. 


The rebound is at an important near-term crossroads.

Dollar/Yen rebounded sharply yesterday to break a three-week corrective downtrend.

  • There is resistance between 133.00/134.50
  • The daily RSI is back to around 50 – a point where it has struggled during the phases of bear control.

Closing consistently above 133.00 would continue the improvement and would open moves towards 134.50/135.00.

The hourly chart shows initial support between 131.60/132.10. This needs to hold to continue the recovery.


A rebound has been seen in Aussie/Yen in recent sessions. 

Having broken the sharp corrective downtrend of the past month, there is scope for a rally now.

However, an important resistance is being tested.

We see that AUD/JPY has rallied into resistance around 88.10/89.00. 

This coincides with the resistance of the falling 21-day moving average and the daily RSI back around 50. It is also a similar move to what was seen several times in December.

However, if this resistance can be broken then there is scope for further recovery within the five-month downtrend.

A rally into the more considerable resistance between 90.20/91.00 is possible.

Support and resistance levels for Forex, Commodities, and Futures/Indices 

EUR/USD R2 1.0907
R1 1.0870
S1 1.0816
S2 1.0806


R2 1.2400
R1 1.2361
S1 1.2293
S2 1.2280
USD/JPY R2 133.00
R1 132.88
S1 132.18
S2 131.75


R2 1975
R1 1971
S1 1955
S2 1949


R2 26.21
R1 24.63
S1 23.41
S2 23.23
Brent Crude Oil
R2 80.55
R1 79.35
S1 77.45
S2 76.00


S&P 500 futures
R2 4081
R1 4074
S1 4031
S2 4023
DAX Index 
R2 15,675
R1 15,538
S1 15,347
S2 15,301
FTSE 100 Index
R2 7674
R1 7643
S1 7565
S2 7544

Data: MT5/IXOne

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