USD/JPY rebounds beyond 117 as treasury yields rally

Friday’s rebound in USD/JPY gained further traction in the Asian session this Monday, driving the rate back above 117 handle amid holiday-thinned markets. The Japanese markets remain closed today in observance of a National holiday.

The pair is last seen exchanging hands at 117.22, up +0.15% on the day, and looking to regain 117.50 levels.  The major is on a one way higher following the release of somewhat upbeat US labor market report, which sent the US treasury yields higher across the time horizon. The 2-year treasury yields, which mimic the US short-term interest rate expectations now rally over 3% to 1.214%.

Rob Carnell, Chief International Economist at ING, noted, “The key figure here is average hourly earnings – now rising at 2.9%YoY, its highest rate of growth since June 2009. Along with rising headline inflation the Fed is probably looking back to its 3-hike 2017 dot-diagram, and thinking told you so! We still think there may only be 2 hikes in 2017, but believe there is a very strong case for a March hike now, and are forecasting just that.” 

Moreover, thin liquidity and limited volatility amid light trading also exaggerates the upmove in the major, despite a generalized retreat in the greenback. Attention now turns towards the US LMCI data due later today ahead of the Chinese CPI figures slated for release tomorrow.

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USD/JPY Technical levels to watch 

The major finds immediate resistance at 117.35 (daily high). A break above the last, the major could test 117.50 (round figure) and 118.19 (Jan 4 high) beyond the last. While to the downside, the immediate support is seen at 116.94 (10-DMA) next at 116.78 (5-DMA) and below that at 116.50 (psychological levels).