USD/JPY : Yield Volatility

(Fri, 19 Mar 2021). Several traders were caught offside on Thursday as the US Dollar whipsawed back higher alongside surging Treasury yields. The ten-year Treasury yield, for example, briefly spiked above 1.75% intraday and provided a meaningful boost to US interest rate differentials. This helped the broader DXY Index reverse prior session losses sparked by another dovish FOMC update.

USD/JPY was little changed, however, as the major currency pair stagnates at a huge level of resistance around the 109.00-handle. The Dollar-Yen has started to lack direction with buying pressures clashing with a multi-year bearish trendline. This negatively sloped trendline extends through the June 2015, August 2015, and February 2020 swing highs.

USD/JPY PRICE CHART: MONTHLY TIME FRAME (FEB 2014 TO MAR 2021)

USD/JPY price action also contends with technical resistance posed by the 38.2% Fibonacci retracement level highlighted on the chart above. Honing in on a shorter time frame with daily candlesticks, we can see how well the Dollar-Yen is respecting this bearish trendline as more lower highs begin to form. Though there could be potential for an overshoot above this obstacle near the 109.00-price level, particularly in light of surging Treasury yields, the upper Bollinger Band might reject attempts to push higher and cause USD/JPY to pivot back lower.

USD PRICE OUTLOOK – US DOLLAR IMPLIED VOLATILITY TRADING RANGES (OVERNIGHT)

We find that high-impact event risk posed by the upcoming Bank of Japan rate decision is on tap for Friday’s trading session. USD/JPY overnight implied volatility appears relatively subdued, however, considering that the Bank of Japan is expected to release findings from their latest monetary policy review. If tweaks are made to BoJ monetary policy, such as widening its YCC band, it could catalyze some serious volatility in the Yen and potentially send USD/JPY snapping lower.

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