July 8, 2021 15:14:30

The yen is on track to post its biggest daily rise this year as traders dump risky positions in currency markets in a broad-based unwinding of positions. Havens are bid and high-beta commodity currencies are severely underperforming.

With US 10-year bond yields tumbling, yen buyers have sent USD/JPY spiralling lower in the biggest one-day decline since November last year. Remember that this pair has traditionally had a close correlation with US Treasury bonds – when interest rates head lower, Treasury prices bond prices go up which hurts the dollar, in turn weakening USD/JPY.

After making new highs after the NFP report last Friday at 111.66, the pair moved down below 111 and printed a “doji” candle yesterday in a sign of indecision between the bulls and bears. In Japanese, “doji” means blunder and here, refers to the rarity when the open and close price are virtually equal. Of course, today has seen a strong move lower with prices falling through the upward trendline from the April lows which had proven solid support.

The bullish channel formed over the last few months with a series of higher highs and higher lows looks to have been well and truly broken. The top of this line at 110.27 offers a level of resistance, above the 50-day SMA at 109.76. The pair is now sat on the 23.6% Fib level of the January low to July high move at 109.51 so we may see a pullback or consolidation of this aggressive move lower. That said, bearish momentum is strong so sellers will have eyes on the 100-day SMA at 109.10 which has touched the lower Keltner channel too.