USD/JPY hovers around 120.80s for the first time in six years

  • The USD/JPY continues rallying for the third consecutive day, up 1.41% in the week.
  • Fed’s Bullard, Daly, and Mester favor aggressive rate hikes, thus increasing the odds of a 50 bps move in May.
  • USD/JPY Price Forecast:  The 1-hour chart depicts the pair as upward biased.

The USD/JPY clings to the 120.00 mark following Tuesday’s session in which the pair reached a new YTD high at 121.03, in a session where US Treasury yields skyrocketed, led by the 10-year benchmark note up close to nine basis points, up at 2.384%. At 120.86, the USD/JPY reflects the greenback strength amidst an upbeat market mood.

On Tuesday, US equities finished the day in the green. Though of late, the greenback finished downwards, as reflected by the US Dollar Index down 0.03%, sat at 98.444.

Fed speaking driving the majors, US Treasury yields keep rising

The US economic docket featured more Fed speaking, following US Fed Chief Jerome Powell’s Monday’s appearance at the NABE conference. Powell reiterated that “inflation is too high” and signaled that the Fed is ready to hike rates higher than 25 bps at its next “meeting or meetings.”

US Treasury yields immediately reacted upwards, as investors positioned themselves ahead of the May 4 FOMC monetary policy meeting, where the odds of a 50 bps hike are close to 70%.

St. Louis Fed President James Bullard said that “The Fed needs to move aggressively to keep inflation under control,” emphasizing his calls of interest rates above 3% this year. Bullard added that 50 bps moves would definitely be on the mix. Later, San Francisco Fed’s Mary Daly said that inflation is too high, and she commented that it is time to eliminate accommodation.

Cleveland Fed President Loretta Mester is crossing the wires at press time. Mester said that “front-loading rate hikes is appealing” while adding that raising rates around 2.5% will be appropriate.

The Japanese economic docket will feature the Leading Economic Index on its Final reading for January, alongside the Coincident Index Final.

Elsewhere, Russia and Ukraine’s tussles have taken a backseat of late. US President Joe Biden would meet with his European allies on Thursday in Brussels and are expected to announce another tranche of sanctions against Russia over its invasion of Ukraine.

USD/JPY Price Forecast: Technical outlook

The USD/JPY is upward biased, though it faced solid resistance at 121.00. However, once the USD/JPY retreated towards 120.50s and advanced steadily to current price levels, the USD/JPY found support on an upslope trendline, as shown by the hourly (H1) chart.

Upwards, the USD/JPY first resistance would be 121.00. Breach of the latter would expose January 25. 2016 resistance at 121.68, followed by 122.00. On the flip side, failure to reclaim 121.00 would leave the pair vulnerable to further selling pressure. The USD/jPY first support would be 120.38, followed by 120.00, and then the 50-hour simple moving average (SMA) at 119.85.

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