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What is the outlook for USD/JPY?

MUFG Research discusses USD/JPY outlook and flags a scope for the pair to peak around current levels.

According to technical indicators such as the RSI, USD/JPY is now the most overbought since late in 2016.  On that occasion USD/JPY jumped from just below the 105.00-level to a high of 118.66 between November and December 2016 before falling back towards the 110.00-level in the following months. A similar setup is also evident for the 10-year US Treasury yield where the RSI recently reached its most overbought levels since late 2016. In late 2016 the 10-year US Treasury yield jumped from around 1.8% up to a peak of just over 2.6%, before consolidating between 2.3% and 2.6% in the following months,” MUFG notes.

The historical precedent suggests that USD/JPY is likely to correct lower from overbought levels once the sharp move higher in long-term US yields loses upward momentum,” MUFG adds.

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