USD/JPY Analysis: appetite for risk and a surge in treasury yields

The main catalyst today is likely to be an appetite for risk. The increasing appetite for risk is likely to underpin the USD/JPY. Stock market profit-taking and liquidation should be bearish for the Dollar/Yen.

The USD/JPY pair moved higher in the past four sessions, following a steep sell-off. Increased demand for higher risk assets and a surge in Treasury yields became a support of the minor shift in momentum. The main catalysts behind these moves are optimism that a US-China trade deal could be in the works and last Friday’s dovish comments from Fed Chair Jerome Powell, which suggested the Fed may take a pause in its tightening cycle.

The US Dollar recovered nicely from the 107.20 support against the Japanese Yen. The USD/JPY pair followed a bullish path and moved above the 108.00 and 108.40 resistance levels.

There was even a close above the 108.50 level and the 50 hourly simple moving average. The pair recently traded as high as 109.08 and later corrected towards 108.50. A low was formed at 108.43 and later the pair recovered above 108.70.

At the outset, the pair is following a major bullish trend line with support at 108.65 on the hourly chart. If it breaks the 108.90 level and the 76.4% Fib retracement level of the recent decline from the 109.08 high to 108.43 low, there could be more gains.

On the upside, the next major resistance is at 109.10 and 109.35. On the downside, the trend line, 108.50, and the 50 hourly SMA may continue to hold losses.