As 2022 gets underway, there is a strong conviction in markets that the U.S. Federal Reserve will soon embark on a tightening cycle and Treasury yields will track higher nL1N2TK18L. As the most sensitive currency to rising U.S. yields, the Japanese yen has fallen broadly in the new year.
USD/JPY soared to a five-year high at 116.35 on Tuesday, as the uptrend that began in late 2021 accelerated when Fed dove Neel Kashkari said the central bank will need to raise rates this year to combat inflation nL1N2TK14S.
The hawkish Fed outlook contrasts with a widespread view that the Bank of Japan will remain extremely accommodative through 2022.
The USD/JPY uptrend shows strong momentum with no technical resistance of note until the double top from late 2015/early 2016 at 118.60-70.
The objective of the current trend is the 76.4 Fibonacci retracement of the 2015-2016 decline at 119.52.
USD/JPY will likely continue to track higher in the short term, but in recent years, conviction trades have had a tendency to reverse some time before the end of the first quarter, mainly due to positioning becoming overcrowded and/or an unexpected macro-event.
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