Rise in US Yields Dragging Yen Pairs with It: US 10-Year Yields, EUR/JPY, GBP/JPY

If US bonds continue to move lower, we can expect Yen to move lower as well


Over the long-term, Yen and US bonds are positively correlated to each other.  When bonds go down,  interest rates go up.  So, USD/JPY and interest rates are also positively correlated.  This year, that relationship did not always hold as USD/JPY was more in correlation with the US Dollar than interest rates.  However, since mid-November,  the lower Yen/higher interest rates relationship has come back into favor.

US 10-Year Yields

Source: Tradingview, City Index

US 10-year yields have been moving in an upward sloping channel since August 5th from 0.504% to a high of 0.982% on November 11th.  In doing so, yields had a false breakout about the previous highs of 0.954% on June 5th, only to move back within the channel.  Today, rates are near 0.923%  and closing in once again on the elusive 1.00%.  Notice the correlation coefficient on the bottom of the chart and that since November 9th, the positive correlation between US 10-year yields has returned.  Today, the positive correlation is +.77.  (A correlation of +1.00 means that USD/JPY and US 10-year yields are moving together 100% of the time. )   On a 60-minute timeframe, today yields broke out of a triangle pattern and retraced 61.8% of the move from the November 11th high to the November 20th low. 

Source: Tradingview, City Index


On a daily timeframe, EUR/JPY has broken out above November 9th highs at 125.13.  Next resistance is a confluence from the September 1st highs and a downward sloping trendline from the highs of December 2014, near 127.00.

Source: Tradingview, City Index


Check out GBP/JPY on a 240-minute timeframe as it tries to break above the November 11th highs near 104.21.  Horizontal support is just below at 139.84, then the upward sloping trendline from the lows of October 30th near 139.00. 

Source: Tradingview, City Index

Many of the other Yen pairs look similar to these.   If US bonds continue to move lower and yields move higher, than we can expect the Yen to move lower as well (or XXX/JPY to move higher!).


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