USD/JPY intermarket: eyes on US 10 year yield spread

Currently, USD/JPY is trading at 110.83, up 0.13% on the day, having posted a daily high at 110.93 and low at 110.64.

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With Wall Street recovering, USD/JPY has been trading in a narrower but higher range in the US session, although is little changed as markets balance positive European equities and US stocks on the session so far with US political risks, as explained by analysts at Scotiabank who also warn of a potential squeeze:

"The JPY rose modestly in response to the Grand Jury headlines late yesterday but gains were shallow and short-lived. We note that futures positioning data has recently reflected a heavy short JPY bias among leveraged and speculative accounts that might be prone to a squeeze in the event of heightened risk aversion."

Eyes on US yields and yen spread

An intermarket analysis shows us that the spread in USD/JPY remains the dominating factor medium term, although the nonfarm payrolls data put a halt to that on Friday on a spot basis. US 10 year yields were trading at their lowest level since late June, when the yield had dropped to almost 2.21% before the recovery to a five basis point increase post US data.

However, analysts at Brown Brothers Harriman argue that the 10 year yield has to get above around 2.35% to be anything significant, adding, "... the September note futures contract managed to close barely above 126-10, the 61.8% retracement of the decline since June 14 high near 127-08, but this was a false breakout, as the sell-off before the weekend showed. Initial support for the September is seen near 125-16 to 125-20. A move above 126-16 would like spur dollar losses against the yen. "

USD/JPY levels

The analysts at Scotiabank argued that USD/JPY short-term technical are bearish with negative developments on the 1– and 6-hour cloud charts, "... where the USD has eased below cloud support and “confirming” signals are provided by the bearish crossover in the Tenkan span presage perhaps broader weakness in the USD as the daily cloud chart study looks precarious. We see some support at 109.90 but key support is lower at 108.95 (Jun low)."