The USDJPY pair has been moving in a strong upward trend since the beginning of the year. On the last day of March, the quotations established the maximum of this year at the level of 110.95.
- Inside bar on the daily chart
- downward divergence on MACD
- yields on US10YR are falling
April started with declines, on the daily chart the candlestick formation – Inside bar – appeared.
On Monday the prices broke out from the formation, creating a downward divergence on the MACD oscillator. This is a strong signal to begin correction of this year’s growths. An attractive level for opening a short position (SELL) would be a retest of the lower limit of the defeated inside bar.
On the H4 chart we can see that the local S/R level located at 109.35 ( green line) can be a target for supply. Its defeat will direct quotations to the nearest demand zone located at the level of 108.50-108.30.
A factor having a big influence on the Japanese yen quotations are the US bonds.
We observed an increase in yields (cheapening) of US 10-year bonds from 0.55% in August 2020 to 1.72% at the end of March 2021, i.e. by over 200%. Investors were getting rid of an asset that offers no protection against the expected upcoming high inflation. Japanese bonds at that time have a yield of 0.11% which encouraged investors to invest in US bonds.
However, since the first days of April we have noticed a slow change in the trend, today the yield fell to 1.65% and the yen started to strengthen against the USD. It is worth to observe the US10YR yield curve – it may determine future movements on the USDJPY pair, as well as on gold (GOLD), the Swiss franc – CHF and EUR. All these instruments may gain against the USD in the nearest future.
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