CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
☰
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
✖

Should traders be looking at yields to help trade Yen

July 21, 2021 11:24 AM

Should traders be looking at yields to help trade Yen?

US 10-Year yields traded to their lowest levels since February yesterday, reaching a low of 1.129 before reversing and closing the day positive, at 1.223.  The price action left a long lower shadow on the daily candlestick and a small read body.  This is known as a hammer, in which prices “hammer” out a bottom. (Ideally a hammer should have a shadow 2-3 times the length of the real body.)  Yesterday, yields closed back above horizontal support at 1.223 and if they close today above 1.227, they will have created a false breakdown below the 38.2% Fibonacci retracement level from the March 2020 lows to the March 30th, 2021 highs.  Also notice that as yields put in a lower low, the RSI did not, and indication of a possible reversal.

Source: Tradingview, City Index

Japanese candlestick cheatsheet

US 10-Year yields and XXX/JPY pairs typically trade together.  The correlation coefficient at the bottom the USD/JPY chart below shows that since early January, with the exception of June, the 2 assets have been positively correlated.  Any reading about 0.00 is a positive correlation and any reading below 0.00 is a negative correlation.  The closer the reading is to +1.00 (-1.00), the more the 2 assets are positively (negatively) correlated. Traders should pay attention to readings above +0.80 or below -0.80 to look for strong correlations.  The current correlation coefficient between 10 Year Yields and USD/JPY is +0.81.  Therefore, as long as the correlation holds, yields and USD/JPY should be moving in the same direction. Strong resistance in USD/JPY is near 111.00, which is the confluence of the previously broken trendline and horizontal resistance.

Source: Tradingview, City Index

Correlation coefficients for 10-year yields and cross currency Yen pairs are even stronger on the daily timeframe.  For AUD/JPY, the correlation coefficient is +0.94!  Notice that similar trading pattern this week between US 10-year yields and AUD/JPY:

  1. A large down day on Monday
  2. A hammer on Tuesday (held horizontal support)
  3. A reversal thus far today, back about the 38.2% Fib retracement level


Source: Tradingview, City Index

The correlation coefficients between US 10-year yields and other Yen pairs are similar:

  • EUR/JPY: +0.95
  • CAD/JPY: +0.94
  • GBP/JPY: +0.92
  • NZD/JPY: 0.85
  • CHF/JPY:  +0.82

If traders are looking to trade Yen pairs and are looking for more information to help them decide, they should look at the US 10-year year for help in determining direction!

Learn more about forex trading opportunities.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024