USD/JPY Reverses Sharply Higher, Threatening A Break Of Key Resistance

Price action in USD/JPY has been volatile over the past 24 hours with several drivers impacting the exchange rate. The Japanese currency was the strongest in early day trading but following a midday reversal, it is the weakest slightly ahead of the North American close. The USD/JPY pair was last seen testing critical resistance that has held it lower since around the middle of the month.

The currency pair fell sharply in late day trading yesterday’s after reports of North Korea’s missile test triggered a shift to risk aversion. USD/JPY dropped lower from a consolidation to touch levels not seen since April.

Gold prices pushed to fresh nine month highs in a correlated move after breaking above important resistance at 1295 yesterday that had held the price lower since April. Similar to other risk assets, a reversal in gold in European trading has resulted in a decline to give back all of the early day gains and a reversal daily candle appears probable.

The US Dollar index (DXY) briefly traded below the 2016 low of 91.92 in early European trading today to trade at levels not seen since early 2015. The index has reversed higher to regain the level and wipe early day losses and was last seen trading flat.

US equity markets opened weaker with the S&P 500 index opening at 2,431 from yesterday’s close of 2,444. However, investors shrugged off concerns over North Korea’s missile test, bidding the index back into positive territory. The combination of a stronger dollar and the turn higher in US equities triggered a jump in upside momentum for USD/JPY with a recent increase in strength in the correlation between the currency pair and US equities.

The yen trades lower against all of its major counterparts, giving up the largest loss against the Swiss franc with CHF/JPY last trading at near 115.00 for a gain of 0.6%.

US Treasuries also reversed abruptly with the 10-year yield surging into positive territory for the day after breaking below the June low in early day trading to offer the lowest yield since November 2016. The 10-year government bond last yielded 2.136%, up nearly one percent on the day.

Although the daily chart and smaller time frames point to a clear downtrend in USD/JPY since the high posted in July, USD/JPY has essentially traded flat on a weekly chart, signaling buying pressure near the June low of 108.80. The failed break of the level earlier today combined with an attack at resistance opens up the potential for a USD/JPY…

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