USD/JPY at 10-day high as Trump talks Tax cuts, boosts T-yields

Reflation trade is alive and kicking as the American dollar and the treasury yields spiked after Trump promised a major tax announcement in a few weeks.

The Dollar-Yen pair jumped above 113.00 levels in the overnight trade and extended gains in the Asian session to 113.54 levels. The level was last seen on Feb. 1. 

Consolidation ahead or Buy the Rumour, Sell the fact?

Trump’s promise to deliver on tax front in a few weeks means the ‘haven assets’ could either take a beating or consolidate. Buy the rumour, Sell the fact trade cannot be ruled out, although the pair may not have the same magnitude of the upside risk at the moment, given the tax cuts and fiscal spending have been largely priced-in during Nov-Dec period.

Meanwhile, consolidation is likely if the Treasury yields fail to extend Thursday’s rally. At the time of writing, the 10-yr yield and 2-yr yield were flat lined around 2.40% and 1.189%.

China trade numbers and US import price index are once again likely to play second fiddle to Trump tweets/comments. The heightened odds of tax cuts in the US could overshadow any dollar negative data releases/events.

USD/JPY Technical Levels

The descending trend line hurdle is seen around 113.60. A violation there would add credence to Thursday’s rebound from sub-112.00 levels and rally to 113.35 levels and would open doors for 114.54 (23.6% of Trump rally). The next major hurdle is seen at 115.00 (zero figure).

On the other hand, a failure at trend line followed by a break below the session low of 113.21 could yield a pullback to 112.79 (10-DMA) and 112.57 (5-DMA).