USD/JPY PRICE OUTLOOK: US DOLLAR VOLATILITY STILL HINGES ON TREASURY YIELDS, BIDEN STIMULUS DETAILS & FED-SPEAK IN FOCUS
- USD/JPY price action snapped lower on Thursday despite firming 10-year Treasury yields
- US Dollar volatility has cooled off in the wake of commentary from Fed Chair Powell
- DXY Index could rise if stimulus plans from president-elect Biden steers rates higher
The broader US Dollar declined during Thursday’s trading session. USD selling pressure looked largely driven by Federal Reserve Chair Jerome Powell who doubled-down on the central bank’s dovish policy stance. Following reports that president-elect Joe Biden is set to unveil a whopping $1.9-trillion fiscal stimulus package, however, US Dollar downside subsided as Treasury yields snapped higher. Biden is expected to speak on the full details at 00:15 GMT Friday, 15 January 2021.
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US DOLLAR INDEX PRICE CHART WITH 10-YEAR TREASURY YIELD OVERLAID: 4-HOUR TIME FRAME (23 DEC 2020 TO 14 JAN 2021)
On balance, the DXY Index notched a modest 0.13% drop. USD/JPY price action slid about 20-pips despite the 5-basis point rise in 10-year Treasury yields for the session. Seeing that the Dollar-Yen is the second largest component of the DXY Index and generally sensitive to swings in interest rate differentials, the Greenback might broadly track the ebb and flow of Treasury yields. That said, the ‘high price tag’ covid aid proposal set to be outlined by Biden could keep upward pressure on Treasury yields and provide positive tailwinds to the US Dollar.
USD – US DOLLAR IMPLIED VOLATILITY TRADING RANGES (OVERNIGHT)
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As reports start to trickle in on Biden stimulus plans, and with FOMC official commentary scheduled this week in the rearview mirror, US Dollar implied volatility readings have cooled. USD/JPY is expected to maintain a 52-pip trading range for Friday’s session with a 68% statistical probability judging by its overnight implied volatility reading. This could bring the 103.54-104.06 price levels into focus as potential support and resistance zones, respectively.
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