US Yields and USD/JPY moving together; 6J confirms
As we wrote yesterday, US Yields and the US Dollar have been surging since the beginning of the new year. As a result, many of the US Dollar pairs, including EUR/USD have taken a hit. What about the traditional correlation markets tend to see, that between the Yen and yields? As of the time of this write, US 10-year yields are at their highest levels in 6 weeks near 1.68% and US 5-year yields are at their highest levels since February 2020, near 1.39%. Therefore, given the usual high negative correlation between yen and yields (positive correlation for yen pairs and yields), shouldn’t yen pairs by near highs?
Everything you should know about the Japanese Yen
The correlation coefficient is the statistical measure of strength of the relationship used to compare two assets. The current correlation between USD/JPY and US 10-year yields is currently +0.79. Traders should look for correlations above +0.80 and below -0.80 for them to be considered significant. +0.79 is extremely close and bears watching. If yields continue to move higher, USD/JPY may move higher with it. The USD/JPY is currently trading near the 127.2% Fibonacci extension from the highs of November 24th, 2021 to the lows of November 30th, 2021, near 116.30. This is the highest level since January 2017. Resistance above is at the 161.8% Fibonacci extension from the same timeframe near 117.34 and then the highs of January 2017 at 118.66. Support below is at the previous highs of 115.52, then today’s lows at 115.27. Below there, USD/JPY could fall to the 50 Day Moving Average near 114.02. Notice that the RSI is in overbought territory which indicates prices may be ready for a pullback.
Source: Tradingview, Stone X
When there is a correlation coefficient that is on the borderline between being “significant” or not, it’s always best to check other sources for confirmation. For USD/JPY, one chart to look at is that of the Japanese Yen Futures, or 6J. Notice that the chart is the inverse of USD/JPY because it is in yen terms and not US Dollar terms. The correlation coefficient is -0.80, which is considered significant. Price tested the 127.2% Fibonacci extension from the November 24th lows to the November 30th highs, near 0.008602. The next level of support is at the 161.8% Fibonacci extension of the same timeframe, at 0.008524. Resistance is at the previous lows near 0.008657 and today’s highs of 0.008678.
Source: Tradingview, Stone X
The move in US yields over the last 2 days has taken USD/JPY along with it for the ride. The correlation coefficient on the daily timeframe is borderline as to whether it is significant. However, if traders look at the Yen futures contract, or 6J, they can see that the front month contract has already reached the -0.80 level, giving more confidence to the significance of the correlation between the US 10-year yields and the cash pair. If this relationship holds, watch for USD/JPY to continue to move with US 10-year yields!
Learn more about forex trading opportunities.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.
ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.
City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.
The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.
The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.
The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
© City Index 2024