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.
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 nL1N2FL2A8.
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