USD/JPY remains very much connected to the yields story for now

The pair is down again today by 0.3% to 154.18 currently, after having pushed just above 155.00 early yesterday. It’s been a push and pull start to the week but that largely owes to the moves in the bond market. 10-year Treasury yields nudged up to around 4.47% early yesterday before retreating back to just under 4.41% now. That is pinning down USD/JPY as such to start the week.

As seen above, the correlation continues to hold strong for the pair in the lead up and aftermath of the US election. That ties a lot to the dollar momentum in general as well.

The near-term chart suggests that sellers are back in control, with price action now resting below both its 100 (red line) and 200-hour (blue line) moving averages. However, it’s still early in the run to convince of a major pullback in the pair just yet. I mean it is a good early sign for sellers but they might need a stronger trigger to get the ball rolling.

With little in terms of US data to act as catalysts this week, it could be a tough one to figure out at least for the time being. The post-election momentum in the dollar has now clearly stalled. But to say that we’re going to see a notable pullback is still dependent on the technical picture across multiple dollar pairs.

And we’re not quite there yet, especially in the likes of EUR/USD, GBP/USD, and AUD/USD. Price action is now keeping in between the 100 and 200-hour moving averages respectively for all those three pairs. So, the near-term price bias is more neutral for now.

Going back to USD/JPY, all eyes will stay on the bond market for the time being. That will determine the extent of any pullback in the pair. As for downside levels, there is potential for a stronger corrective move. The 200-day moving average is only seen at 151.85 with the 23.6 Fib retracement level of the swing higher since the end of September only seen at 152.69.

This article was written by Justin Low at www.forexlive.com.