On Thursday, the USD/JPY found some momentum after losing it earlier in the week and surged to a new monthly high.
Despite the underlying optimism, the resurgent USD demand has remained supportive of the advance. Possibly, a prolonged advance over the 115.00 level has already laid the groundwork for more gains in the future.
Review Of The Technical Details
The USD/JPY duo continued to climb higher as the trading day progressed into the European session, reaching a new monthly high in the vicinity of 115.15 in the final hour.
Some technical buying on sustained strength above the critical psychological level of 115.00 could also be attributed to the upward trend.
The above handle corresponded with a resistance level defined by the upper limit of an upward trending channel running from the monthly swing low to the current price. A persistent rally over this level might be viewed as a new trigger for optimistic traders.
This may have already laid the ground for a further rally in the near term, despite the low volume of trading observed towards the end of the year.
An Overview Of The Fundamentals
A number of supportive factors helped the USD/JPY pair to extend its uptrend that has been in place since the start of the month and gain momentum during the first part of trading hours on Thursday.
Although the solid underlying sentiment in the financial markets continued to undermine the relatively secure Japanese Yen, the USD/JPY pair benefited from the underlying bullish sentiment.
The hope engendered by hints that the Omicron variation may be less severe than previously thought served to mitigate concerns about the economic impact of the constant increase in new COVID-19 instances.
As a result, investors’ demand for presumed riskier assets was bolstered, as seen by the recent positive run in the equity markets, which continued into the second quarter of 2018.
Another hint from the overnight surge in US Treasury bond rates, which followed a weak interest in a $56 billion auction of seven-year notes, was taken into consideration by bulls.
The yield on the benchmark 10-year US government bond has returned to 1.56% for the first time since Nov 29, whereas the yield on the two-year bond has risen to its highest level since March 2020.
This comes on the heels of the Federal Reserve’s hawkish forecast, which predicts at least three rate rises next year and has helped to rekindle demand for the US Dollar, which has given the USD/JPY pair a further boost in recent weeks.
Market players are now looking ahead to the US economic calendar, which will include the publication of Weekly Initial Jobless Claims and the Chicago Purchasing Managers’ Index (PMI).
This, in conjunction with the rates on US Treasury bonds, will impact the USD’s price dynamics. Furthermore, traders will draw cues from broader market volatility to seize some short-term opportunities in the USD/JPY pair in the next few days and weeks.