- US dollar continues to pullback across the board.
- Yen loses momentum in the market amid risk appetite.
- USD/JPY fails to benefit from the rally in Wall Street.
The USD/JPY is about to end the week trading around 127.00. The pair bottomed on Tuesday at 126.35, the lowest level in five weeks and then rebounded finding resistance below 127.50. It is about to post the third weekly decline in a row.
The US dollar remains weak, and keeps correcting lower versus G10 currencies from multi-year highs. The improvement in risk sentiment boosted the retreat that was also driven by steady US yields.
The demand for Treasuries remained firm despite the rally in Wall Street. The S&P 500 is heading to a weekly gain of more than 5%. US yields edged lower during the week. The US 10-year yield stands at 2.74%, far from the 3.20% (May 9).
In March, USD/JPY broke through 117 and moved sharply higher. IMM data shows Leveraged Funds’ short JPY position expanded over the following four weeks at the fastest pace in five years. Interestingly, despite the rally at risk this week USD/JPY has failed to rally and hit a new low on Tuesday. We continue to see downside risks over the coming weeks,” wrote analysts at MUFG Bank.
In the short-term, the bias in USD/JPY is tilted to the downside. A break under 126.50 should open the doors to more losses, targeting 126.20 and then 125.75. On the upside a recovery above 127.50 (horizontal resistance and downtrend line from recent top) should remove the negative bias.