Sluggish U.S. yields have weighed on the dollar for the better part of the past two months. After running up to 3% following the Fed’s December announcement that it would begin scaling back its QE program, a big negative surprise in the January jobs report knocked both stocks and yields back. While stocks were quick to recover, yields didn’t follow. Soon thereafter, we had the devaluation in Argentina. That shook global markets, as there became fear of an emerging market contagion. And with that, yields fell through the 2.80% level as capital from fragile emerging market countries, fled in favor of a safe parking place in U.S. Treasuries.
With a series of weaker U.S. data following the events of January, we’ve seen U.S. yields heavy and holding back the dollar.
Today, we finally get a break back above the key 2.80% level in the 10-year. And that becomes fuel for USDJPY.
Here’s a look at the break above this key pivot area in yields this morning, following the better payroll number.
As you can see in the next chart, USDJPY had momentum coming into the jobs number this morning, after breaking above a tough 102.75-85 area (the horizontal black line). And now we get follow-through fuel this morning from the move in yields.
The Argentina event is a good reference point here as we look at yields and how that may influence USDJPY. As I’ve said, with the recovery of the 2.80% level in U.S. yields, we’ve now retraced the break down from the Argentina event. The equivalent recovery level in USDJPY would be 104.80.
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