This Great Graphic, created on Bloomberg, shows the euro-yen (white line) and dollar-yen (yellow line) over the past three months indexed to April 1. What it seems to show is that euro-yen has been leading dollar-yen. The euro tends to peak and bottom before the dollar does against the yen.
This is particularly noteworthy because the euro has begun recovering against the yen, while the dollar is still falling against the yen. If this pattern is to hold, the dollar should begin recovering against the yen itself. This in turn would seem predicated on a rise in US yields. The US 10-year yield is just above 2.5%. Ahead of Yellen's speech on financial stability at the IMF, US auto sales and the monthly jobs report, it seems unlikely that US yields sustain a break of 2.50%. Without much fanfare, before the weekend, the yield on the 10-year JGB slipped below 56 bp for the first time since May 2013.
That said, the dollar did finish the North American session below the 200-day moving average against the yen for the second consecutive session on June 30. This is also a monthly and quarterly close below the 200-day moving average, which some technicians would attribute additional significance. Other technical indicators are neither oversold nor turning higher.
We think the take away for traders then is not necessarily to pick a bottom in the dollar against the yen, but be prepared for such a technical signal and higher conviction trade. It would be encouraging to see US yields begin to move higher and for the euro to move above its 20- and 200-day moving averages against the yen (JPY138.80 and JPY139.10 respectively).
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