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USD/JPY - Off 3-day lows, but still weak, eyes tax reform

  • USD/JPY has trimmed losses, but still trades below 114.00.
  • 10-year treasury yield struggles to gain altitude.
  • Lower highs, bull market exhaustion near critical hurdle.

The Dollaor-Yen pair dropped to a three-day low of 113.64 levels earlier today, tracking the decline in the US 10-year treasury yield to a three-week low of 2.3 percent.

However, the drop to 113.64 was conveniently short lived, even though the 10-year yield is having a hard time defending the psychological level of 2.3 percent and despite a 0.10 percent decline in the S&P 500 futures.

Looking ahead - the US economic calendar is light, hence the focus is on the tax reform saga. Adam Button from AshrafLaidi.com writes, "the House is aiming to pass the tax cut bill this week. The headlines are likely to be positive for the US dollar but the mood may quickly shift if it encounters problems in the Senate."

USD/JPY Technical Outlook

The daily chart shows a lower highs pattern (114.74-Nov. 6 high, 114.34-Nov. 7 high and 114.01 - today's high). As discussed yesterday, the daily chart is loaded with candlesticks showing bullish exhaustion, that too, near the resistance offered by the trend line sloping downwards from the Aug. 2015 high and Dec. 2015 high. The technical pointers indicate increased odds of a bearish break in the USD/JPY pair.

Jim Langlands from FX Charts details his technical outlook as follows-

"The short-term momentum indicators still look mixed/flat so a fairly nimble stance is required, with further choppy trade either side of 114.00 looking possible over the next couple of days."

"On the downside, support will be seen at the rising trend support/session low at 113.70 and at 113.50, below which could then head back to the 31 Oct low (112.95) although this seems unlikely today. If wrong, a sustained break of 113.00 would see us back in the previous 112/113 range, where 112.75 would be the first level of support ahead of 112.30."

"On the topside, minor resistance now lies at 114.35/45 and above, towards the 114.73 6th Nov high, but above which could see a test of the descending trend resistance, currently at around 114.90. A break of 115.00 would then see little resistance until 115.20 and then 115.50."

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