USD/JPY’s pullback from 111.65, contained above 111.25

3 weeks ago 6
The US dollar remains bid, supported above 111.25. US/Japan bond yields' differential is boosting greenbacks rally. Analysts at Credit Suisse see the USD likely to reach levels past 117.00.

The US dollar failed on its first attempt to break the year-to-date high at 111.65 earlier on Tuesday and the pair gave away some ground to find support above 111.25.

The USD remains buoyed on higher US yields

In spite of the recent reversal, the near-term USD/JPY trend remains positive, following a five-day winning streak. The US dollar has appreciated beyond 2% over the last five days, buoyed by a US bond yield rally amid the Federal Reserve’s signals towards the end of the Quantitative Easing era.

The bond yields' differential between the US and Japan, with the Bank of Japan applying a yield curve control policy to keep the 10-year note at 0%, has offset the impact of a somewhat sourer sentiment caused by concerns about a debt crisis at China’s Evergrande Group, which should have offered some support to the safe-haven Japanese yen.

USD/JPY: likely to reach beyond 117.00 – Credit Suisse

Credit Suisse’s FX Analysis Team sees the dollar marching higher, boosted by a solid appreciation in US yields: “Whilst the 112.23/40 resistance should be respected, an eventual break would see an important and large base complete to signal a more sustained change of trend higher. We would expect this to provide the platform for a move to the 2018 highs at 114.25/55 initially, with scope for 117.20 in due course, the long-term downtrend from April 1990.”

Technical levels to watch

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