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  • USD/JPY is consolidating around the 109.75 mark, just below recent multi-month highs in the 109.80s.
  • Key data this week out of both the US and Japan will be in focus this week.

USD/JPY is consolidating around the 109.75 mark, just below recent multi-month highs in the 109.80s that were printed last Friday. The pair found decent resistance in the 109.30s, with traders clearly eager to buy the dip as USD/JPY fell back to support in the form of the earlier month highs in this area. This technical price action is a bullish sign and raises the likelihood that USD/JPY will grind on to fresh multi-month highs and perhaps even conquer the 110.00 level in the coming sessions, quarter-end rebalancing flow volatility allowing.

Driving the day

Despite a lack of fresh fundamental catalysts, US government bond yields have been picking up since US players arrived in the market on Monday, with the 10-year yield rising from about 1.65% to current levels close to 1.69%, a 3bps rally on the day. That means the US/Japan 10-year bond rate differential is back above 160bps – the higher this rate differential goes, the more bullish for USD/JPY, although it would be especially helpful if the rise in US government bond yields was being driven by an increase in real yields, which has somewhat been the case this Monday (10-year TIPS yields are up 2bps on the session to -0.66%).

A breakout to fresh annual highs this Monday seems unlikely given quiet market conditions, but there is likely to be plenty of action later in the week. On Wednesday, US ADP National Employment data for the month of March is set for release, proceeding with the March US ISM Manufacturing survey and Friday’s US jobs report (also for March). The first two of these data points could trigger significant volatility in USD/JPY, but Friday is where things get really interesting. Given that it is Good Friday (a public holiday in most of the Christian world, meaning the Americas and Europe), FX volumes will be very thin, while stock and bond markets will be closed. Therefore, price action could get wild.

Many market participants might look to close their positions ahead of Friday, meaning Thursday could see some unusually choppy price action. Note that there is also plenty of important data out of Japan this week that could trigger some volatility; February labour market and retail sales data are out on Tuesday, February Industrial Production on Wednesday and then the Q1 Tankan business survey on Thursday.