USD/JPY rallies to fresh three-year highs around 113.30

• USD/JPY breaks above 113.00 level non seen since December 2018.
• High US T-bond yields and broad US dollar strength are the main drivers of the USD/JPY pair.
• The Federal Reserve prospects of bond tapering remain intact, despite an awful NFP report.

The USD/JPY is soaring during the New York session, trading at 113.38, up 1.03% at the time of writing. The risk-on environment, as witnessed by US stock indices trading in the green, post gains between 0.43% and 0.86%. Also, the US T-bond yields, with the 10-year benchmark note rate rising above the 1.60% threshold, exert upward pressure on the USD/JPY pair.

The US Dollar resilience continues despite a dismal US Nonfarm Payrolls report

Additionally, the US Dollar Index that tracks the greenback’s performance against its rivals is advancing 0.16%, currently at 94.24, weighing on the Japanese yen and boosting the buck.

On Friday, the US Nonfarm Payrolls report was worse than expected, but August’s upward revision has kept the prospects of a Federal Reserve bond taper announcement alive. Further, US stock indices closed with losses, and US T-bond yields rose, reinforcing the abovementioned, as investors did not buy the dip, as they got ready for an easy money cycle coming to an end.

On the macroeconomic front, on Tuesday, the Japanese economic docket will feature the Producer Price Index monthly and yearly and the Bank Lending on an annual basis for September. Concerning the US, the JOLTS Job Openings for August, and the Atlanta Federal Reserve President Raphael Bostic, could add a fresh catalyst for USD/JPY traders.

USD/JPY Price Forecast: Technical outlook

Daily chart

The USD/JPY is trading well above the daily moving averages (DMA’s), above 113.00, supporting the upside bias. Momentum indicators like the Relative Strenght Index (RSI) are at 75, suggesting that the pair is oversold, so a consolidation or a correction towards 113.00 might be on the cards. 

On the way north, December 2018, swing highs around 113.50 is the first resistance level. A break of the latter could open the way for further upside action. The following supply zone would be 114.00, and then September 2018 swing highs around 114.55.

KEY ADDITIONAL LEVELS TO WATCH