The pair still sits in a narrow range today (20 pips) but is at the highs as markets are in a calmer mood to start the new day. Treasury yields are mostly flat after a recovery in overnight trading while US equity futures are up by 0.2% ahead of European trading.
That said, the price action that we saw yesterday pretty much epitomises the kind of mood we're seeing in the pair this week i.e. traders are finding it hard to settle on a firm direction. In that sense, sentiment is not helped by the fact that Treasury yields rose towards the end of US trading yesterday after a sharp fall earlier in the week.
The thing that puzzles me most this week is that USD/JPY is still sitting at this range despite global yields tumbling and as 10-year Treasury yields hit lows not seen since 2017. But after observing how yields came back up yesterday, it could be a hint of caution that a straightforward risk-off run may not be so straightforward.
Right now, the bond market is in charge of trading direction so the best way to get a grip of yen pairs is to go with the flow and what they are telling us. Using USD/JPY as a gauge:
The near-term bias is now more neutral as price holds in between both key hourly moving averages. That also backs the case that traders remain indecisive in chasing a risk-off move for the time being. The risk for sellers here is if price starts lurking towards the 200-hour MA (blue line) @ 109.81 and break above that.
It would signal that the near-term bias is turning more bullish again but I reckon we need the bond market to also confirm such a move. And the same can be said for the case for a downside move in USD/JPY.
If global yields continue to fall further, I just don't see how the pair can continue to trade at its current levels. Eventually, something's gotta give and when it does, it could get real ugly, real fast. I'd watch for a move below offers lined up at 109.00 and the May low @ 109.02. If that breaks, we could see more follow through selling to drive the pair down quickly.
But once again, it all depends on the bond market right now.