USD/JPY runs into test of its 200-day moving average
This one has played out in a fashion that can really be described as simplicity at its finest - at least from a technical perspective. The pair has broken above key trendline resistance levels and ran with the break ever since.
Buyers first took out the 100-day moving average (red line) and raced towards 105.00 before pushing higher in more convincing manner yesterday as the dollar strengthened.
That is seeing a test of the 200-day moving average (blue line) @ 105.58 now with the November highs @ 105.65-68 also posing some added resistance.
So, what's next for the pair as we look towards the weekend?
The chart is saying that perhaps the momentum may stall as we reach a key level now, but a firm break above the 200-day moving average could potentially target towards 108.00 next as buyers will establish a more bullish bias in the pair.
That said, there are a couple of moving parts to look out for from a fundamental perspective that could justify that or temper with an extended breakout.
The first being dollar momentum and with EUR/USD keeping a break below 1.2000 and potentially running further below key support @ 1.1967-76, that could see dollar gains gather pace and keep the greenback underpinned across the board.
The next moving part is somewhat correlated and that is to do with the bond market.
Treasury yields are keeping higher on the week, with 10-year yields having gained by over 7 bps and that is helping to put upside pressure on yen pairs in general - while at the same time also bolstering the dollar narrative a little bit.
While I would say an extended break above 1.20% is unlikely unless the market so chooses to focus back on the reflation narrative more firmly, yields staying elevated at current levels won't do USD/JPY much harm if the dollar maintains its momentum.
The final thing to consider is yen flows ahead of the fiscal year-end in Japan.
That view is outlined more clearly here and is something to consider in the coming weeks. Then again, it is all about reading the tea leaves and what the chart is saying also matters so we'll see how well the 200-day moving average holds up for now.
