Update on USDJPY and US Yields

Yields on short-term US Treasury debt have fallen to the lowest in history on mounting expectations of extra stimulus from the Federal Reserve. USD/JPY has been doing nothing but tracking yields which means that until yields bottom, USD/JPY will remain under pressure. I’ve been talking about this for weeks now – here’s an updated chart. If you want to forecast where USD/JPY is headed, just watch how yields respond to payrolls

How Far Can USD/JPY Fall?

The U.S. dollar fell to a 7 month low against the Japanese Yen this morning following another barrage of weak economic data. Consumer prices fell, foreign inflows decreased and the UMich consumer confidence survey dropped to the lowest level since August 2009. On FX360.com, I talked incessantly in my daily report about how the data today was going to be weak and yesterday, I said USD/JPY was going to fall to at least 87. However now that it has broken below that point, the burning question on everyone’s minds is How Much Further Can it Fall?

My updated target is at least 85.00 – The currency pair’s 14 year low. When USD/JPY reaches that point, expect Bank of Japan officials to cry uncle and attempt to talk down the Yen (and up the dollar). That will most likely create some 2 way risk in USD/JPY and stem the currency’s slide. Yesterday, Shirakawa already warned that they are watching USD/JPY closely.

Enjoy the chart, enjoy the trade.

Dollar Headed Lower?

Over the past 48 hours, the U.S. dollar has come under aggressive selling pressure and I think USD/JPY is set to test its year to date low below 87. Here is a chart of the Dollar Index that shows a break of a major trendline which suggests that the dollar’s weakness will not be limited to just the Yen. I meant to post this yesterday but got caught in FX360 work. Sorry!

U.S. fundamentals have taken a turn for the worse with retail sales falling short of expectations, manufacturing activity slowing and producer prices falling. Even the Fed who normally prefers to assure investors has turned pessimistic! This means that not only will the U.S. central bank leave rates on hold for the remainder of the year, but in the context of improving economic data and successful bond auctions in Europe, fundamentals have made the dollar has attractive.

As a result, I think that USD/JPY is headed for at least 87.00.