- USD/JPY continues to rise pre-Jackson hole, indicating the markets are likely pricing in a hawkish Fed stance.
- The rally contradicts the drop in the 10-year US-Japan yield spread.
- Technicals are biased toward the bulls.
The USD/JPY is reporting gains for the fourth straight day, having hit a three-week high of 111.49 a few minutes ago.
The currency pair bottomed out at the ascending (bullish) 100-day moving average (MA) support earlier this week as the probability of the Fed rate hike in December rose back above 60 percent after the Fed minutes showed the policymakers are set to follow the path of gradual policy tightening.
Further, the minutes also revealed growing concerns among official over how trade war will impact the economy.
However, the USD/JPY’s ascent indicates the investors are expecting the Fed head to sound hawkish during his speech at the Jackson Hole Symposium, scheduled later today.
However, if Powell stresses more on the negatives laid out in the minutes, then the USD/JPY could drop sharply.
Technically speaking, the pair looks set to extend the rally further. As seen in the daily chart below, the pair closed above the confluence of falling trendline and 50-day MA yesterday, signaling a bearish-to-bullish trend change. It essentially means the doors have been opened for a re-test of the recent highs above 117.00.
Only a close below the 200-day MA of 109.82 will likely embolden the bears.
Daily chart
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