A move that looks more USD driven despite yen pairs heading lower
USDJPY is now slowly edging lower as it breaks through the lows around 110.30/40 by a couple of pips. It's not a significant move in pip amounts but in price action terms, it could make the difference in pushing for new lows and a test of 110.00.
USDJPY daily chart
110.00/109.90 is still a big line of support and a break there could be real trouble. 110.60 remains the main resistance level to watch but look for signs that 111.40 starts to resist also as that will keep the bearish bias of today in place.
A lot of focus is on Us bond yields, and particularly 10's sitting on important support around 2.30%
US 10yr yields
The question I want answered is who is buying bonds right now?
Conventional wisdom says that as interest rates rise, bond prices fall (yields go up), so with all the hikes being touted, why are yields falling (bonds being bought)? It can't be foreign money buying bonds, as that would be USD supportive (or neutral if USD reserves were being used). It can't be an asset switch from something like stocks (again, it would be USD neutral unless stock sale proceeds were more than what gets put back into bonds), as we'd see bigger selling in stock markets.
Conventional wisdom has been all turned around since the crisis as bond markets saw a huge run of money into them on safety. That money should be running the other way in a recovery as investors look for better rewards via higher risk.
We could be seeing more of the Trump rally unwinding but that still doesn't answer the question of who's buying bonds into a rising inflation and rising interest rate environment? Maybe all that QE money sloshing around is parking up in higher yields while it waits to be withdrawn? That still doesn't relate to FX unless there's lots of hedging going on.
Whatever it is the bond/USD correlation is tight as can be.
Answers on a postcard...
