- USD/JPY reaches new peaks as US yields surge
- Weak yen propels Nikkei 225 futures toward crucial resistance
- Upcoming Fed and BoJ rate announcements set for Wednesday and Thursday
- Bullish trends identified for both USD/JPY and Nikkei 225 futures
Market Overview
The anticipated rise in US Treasury yields has pushed USD/JPY to new weekly highs, solidifying the correlation between technical analysis and market dynamics, even amid forthcoming significant economic events. This intertwining creates a backdrop for potential trading opportunities in the week ahead.
The yen’s depreciation has attracted the attention of investors in Nikkei 225 futures, as the uptrend in corporate earnings begins to offset fears surrounding proposed trade policies, thereby offering encouragement to the Japanese stock market.
Surge in Treasury Yields Fuels USD/JPY Momentum
The previous week saw a notable decline in US bonds, particularly on the longer end of the yield curve. A sharp increase of 24.6 basis points in the 10-year Treasury yield brought it close to levels not seen since the immediate aftermath of the last presidential election.
Source: TradingView
Furthermore, a 16 basis point adjustment in the expected pace of Fed rate cuts by the end of 2025 likely contributed to the rise in yields in anticipation of a more hawkish stance from the Fed, which meets to discuss rates on Wednesday.
Technical Analysis Highlights
The 10-year US Treasury note futures chart showed a steep decline last week after breaking below the 200-day moving average and a significant uptrend that has been in place since mid-November. A recovery attempt stalled at key horizontal support late in the week, reinforcing the bearish technical signals.
Source: TradingView
With indicators such as the RSI and MACD showing downward momentum, the outlook appears to favor further declines unless corrective rallies occur. The notable inverse correlation of -0.92 between Treasury futures and USD/JPY over the last month underscores the latter's sensitivity to US interest rate projections.
USD/JPY Breaks Resistance Levels
Source: TradingView
The observed increase in US yields has encouraged a bullish trend in USD/JPY, overcoming resistance at 153.38. Early in the week, the pair also managed to break through the 50 and 200-day moving averages. Positive signals from both RSI and MACD reinforce the strategy of buying on dips while targeting bullish breakouts.
The breakthrough over 153.38 creates an opportunity for traders, with potential retracements back toward this level providing an entry point for long positions, secured by a tight stop just below for risk management. Initial upside targets could be set at 155.89 and 156.75.
Conversely, if the price reverts through 153.38, short setups do not present a strong case, particularly given the proximity of the key 200-day moving average, making it less appealing unless for intraday trading.
Nikkei Futures Eye Potential Breakout
The recent rally in USD/JPY seems to exert influence on Nikkei 225 futures, with the correlation between the two rising to approximately 0.75 over the past fortnight—only previously matched once in the last two months.
Nikkei futures have been in a trading range for some time, supported at 38000 with sellers positioned above the critical level of 40000. Recently, futures have advanced towards this upper boundary, finding support around 39000 along with a minor uptrend established in late November. Indicators suggest building momentum for a possible bullish breakout in the near term.
Source: TradingView
The uptrend currently sits around 39450, closely aligning with Friday's closing price. If this level holds, traders might consider entering long positions above it with a protective stop below. Given the previous sell-offs at the 40000 level, this is likely to serve as an initial target. Conversely, failure to maintain the uptrend could negate the bullish stance, allowing strategies to capitalize within the current range, with support identified around 39000.
Conclusion
As both USD/JPY and Nikkei 225 futures navigate key levels, traders should brace for potential volatility stemming from upcoming monetary policy announcements.
