USD/JPY Forecast: In No Man's Land, Seeking 10-Year Treasury Yield Above 2.4%

The Dollar-Yen pair is up 0.58 percent or 65 cents at $113.30 this Friday on renewed tax reform hopes.

The US Senate's decision to approve 2018 budget proposal opened doors for GOP to enact the tax overhaul code without democratic support. This is good news for Trump administration, which has failed repeatedly to repeal and replace Obamacare.

Tax cuts are inflationary, hence, the Treasury Yields strengthened after Senate's decision hit the wires. The 10-year yield and the 30-year yield is up at least 4 basis points, while the 2-year yield is flat lined. Thus, the yield curve (difference between the 10-year yield and the 2-year yield) has steepened to 80 basis points.

The uptick in the 10-year Treasury Yield is lifting the USD/JPY pair. However, the benchmark yield is still well below the recent high (and strong resistance) of 2.4 percent. So, it should be too early to call an upside break on the USD/JPY pair.

The USD/JPY technicals suggest the pair is currently trading in no man's land, marked by the recent high of 113.44 and the weekly low of 111.65.

Daily chart

The chart shows:

• 50-MA and 200-MA crossover
• RSI is bouncing off the neutral 50 line
• The 100-MA is still sloping downwards and the ADX line shows weakness in the trend
• Trendline drawn from the March high and July high is seen offering resistance at 113.70

View

• The resistance at 113.70 could be put to test today.
• A sustained move higher is likely only after the 10-year yield breaks above 2.4 percent.
• The downward sloping 100-MA and the flat ADX line suggests gains could be capped around 113.70 levels.
• On the downside, a break below the weekly low of 111.65 would open doors for a quick-fire drop to 110.73 (weekly 100-MA).