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BUZZ-COMMENT-USD/JPY upside tied to 10-yr Treasuries, Fed inflation fix

Credit: REUTERS/THOMAS WHITE

If 10-year Treasury yields clear August's high near Fibo resistance this week, particularly after Fed Chairman Jerome Powell's update on monetary policy strategy Thursday, the positively correlated USD/JPY may get the backing it needs to clear key resistance by 107 [nL1N2FR0SO]. The potential hitch is if rapidly rising rates sour surging stocks and revive the yen's haven bid.

Aug 25 (Reuters) - If 10-year Treasury yields clear August's high near Fibo resistance this week, particularly after Fed Chairman Jerome Powell's update on monetary policy strategy Thursday, the positively correlated USD/JPY may get the backing it needs to clear key resistance by 107 . The potential hitch is if rapidly rising rates sour surging stocks and revive the yen's haven bid.

Because of the BOJ's yield curve control, 10-year JGB yields can barely move from zero, so Treasury yields dominate changes in Treasury-JGB yield spreads. Ten-year Treasury yield charts feature increasing indications the pandemic-driven collapse in yields is reversing. A breakout above August's high and the 50% Fibo of the June-August slide at 71.7/73.1bps would point to 61.8% and 76.4% Fibos at 78.5bps and 85.2bps next. And an ABC target off the Aug. 6 and 24 lows at 84.5bps, lines up by the 76.4% Fibo.

June 9 was the last time 10-year yields were that high, and USD/JPY traded a 106.99/7.87 range that day on EBS. If Powell convinces the market that the Fed will let inflation run above 2%, sub-1% 10-year yields look implausible unless the Fed warms up to yield curve control; something it's been cool to so far .

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Charthttps://tmsnrt.rs/3jeEjte

Charthttps://tmsnrt.rs/3guecMQ

(Randolph Donney is a Reuters market analyst. The views expressed are his own.)

((Randolph.donney@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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