USD/JPY - Post Fed offered tone intact, nears 61.8% Fib even as yield curve remains unchanged

The American dollar remains on the back foot in Asia, extending the post Fed overnight losses even though the yield curve/spread between the 10-yr and 2-yr yield has remained unchanged at 93 basis points. 

The Dollar-Yen pair currently trades just shy of 110.98 - which is the 61.8% Fib R of 108.80-114.49. 

The Fed did what the markets anticipated - Kathy Lien

Kathy Lien from BK Asset Management writes, “The FOMC statement did not disappoint - the Fed left interest rates unchanged, acknowledged that inflation declined and is running below 2%. They also set the stage for reducing asset purchases in September by saying balance sheet normalization will be "relatively soon." These tweaks were all anticipated but clearly investors expected more.  So between lofty expectations, a sharp reversal in Treasury yields and the break of key technical levels, we have at least 3 reasons why the dollar got dumped post FOMC.”

Yields plummeted, USD/JPY follows - Valeria Bednarik

FXStreet Chief Analyst Valeria Bednarik says the drop in the yields weighed over the US dollar. “By the end of the US session, the yield on the benchmark 10-year Treasury note slipped to 2.28% from the previous 2.33 %, while the yield on the 30-year Treasury bond was down to 2.90% from 2.91%. The Japanese calendar had little to offer on Wednesday, and will remain light this Thursday, which means that the pair will keep taking clues from yields and stocks.”

Yield curve stagnant

Though yields dropped, the yield curve or the spread between the 10-yr yield and the 2-yr yield has remained largely unchanged on the day around 93 basis points (bps). The US dollar has closely followed by the yield curve this year - strengthening on curve steepening and vice versa. Given the stagnant yield curve, the overnight losses in the greenback could be short lived…

USD/JPY Technicals

Jim Langlands from FX Charts details the technical points - “The dollar now looks heavy, and a downside break of 111.00 would allow a return to the previous session low of 110.82, the trend support at 110.75 and then towards 110.55/65 and possibly to 110.15. 

On the topside, minor resistance will be seen at 111.45 and then again at 111.85. 112.00 looks unlikely to be revisited today but if wrong, we could see a return to 112.20.”