USD/JPY: Signs of Exhaustion Amid Yield and RSI Divergence
While USD/JPY remains strongly correlated with yields in the belly of the US Treasury curve, that’s not translated to explosive upside recently, a noticeable departure from the trend seen in previous months where rising yields saw dollar-yen rip higher.
With the pair unable to hold gains despite the blowout nonfarm payrolls report last Friday, the price action hints of fatigue following the substantial bullish run from the September lows. The inability to follow US Treasury yields higher may also be a sign carry trade flows may be slowing or even stalling.
RSI (14) has diverged from price over the past month, and with MACD generating a fresh bearish signal, it points to waning bullish momentum, potentially increasing the risk we may see some form of bearish reversal.
With dips below 157 bought over the calendar turn, the risk-reward of going short around current levels does not screen as compelling, suggesting those considering bearish trades may want to wait for a potential retest of Friday’s high of 158.88 before initiating trades.
If the price were to be rejected again at this level, it would generate a decent setup, allowing for shorts to be established beneath the level with a tight stop above for protection. 155.89 would be a potential trade target.
With the pair unable to hold gains despite the blowout nonfarm payrolls report last Friday, the price action hints of fatigue following the substantial bullish run from the September lows. The inability to follow US Treasury yields higher may also be a sign carry trade flows may be slowing or even stalling.
RSI (14) has diverged from price over the past month, and with MACD generating a fresh bearish signal, it points to waning bullish momentum, potentially increasing the risk we may see some form of bearish reversal.
With dips below 157 bought over the calendar turn, the risk-reward of going short around current levels does not screen as compelling, suggesting those considering bearish trades may want to wait for a potential retest of Friday’s high of 158.88 before initiating trades.
If the price were to be rejected again at this level, it would generate a decent setup, allowing for shorts to be established beneath the level with a tight stop above for protection. 155.89 would be a potential trade target.
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