USD/JPY eyes to regain 115.00 as Treasury yields refresh multi-day tops

• USD/JPY seesaws near intraday high, reverses pullback from weekly peak.
• US Treasury yields renew two-year top at the day’s start but stay sidelined of late.
• Escalating fears of faster Fed rate hike, virus woes underpin yields, softer US data, light calendar restricts market moves.
• Second-tier US housing numbers, virus updates may entertain traders.

USD/JPY dribbles near the daily peak of 114.70 during the initial hour of Wednesday’s Tokyo open. The risk barometer pair recently benefited from the firmer US Treasury yields. However, concerns relating to the South African covid variant, namely Omicron, join geopolitical tensions and a light calendar to test the pair buyers.

That said, the US 10-year Treasury yields gained one basis point (bps) to refresh the highest levels since early 2020 around 1.88% by the press time. Coupons of the other key US bond variants, like 2-year and 5-year, also renewed multi-day peaks during the early Asian session during the four-day uptrend before recently grinding higher.

A jump in the Fed Fund Futures indicates faster rate hikes and monetary policy normalization of late, which in turn propel the US Treasury yields in the run-up to the next week’s  Federal Open Market Committee (FOMC).

Read: Fed preview: End of money printing brrrrr – Four 25bp rate hikes this year and QT in September

Even so, a two-year low of the NY Empire State Manufacturing Index slumped to negative in December, -0.7 versus 25.7 expected and 31.9 prior, joined the US NAHB Housing Market Index that eased to 83 versus 84 market forecasts and previous readouts to probe the Fed hawks.

It’s worth observing that escalating geopolitical tensions between Russia and Ukraine, as well as worsening covid conditions in China, Japan and Australia, seem to challenge the USD/JPY bulls despite the firmer yield favor further upside. “Japan on Wednesday will decide to place Tokyo and 12 other areas under a coronavirus quasi-state of emergency as the rapid spread of the Omicron variant lifts nationwide COVID-19 cases to new records and threatens to stretch the health care system,” said Kyodo News.

Also read: Russia’s aggression toward Ukraine could escalate into conflict

Amid these plays, S&P 500 Futures print mild losses while Japan’s Nikkei 225 drops 1.85% at the latest.

Looking forward, US Treasury yields and other risk catalysts are the keys for the USD/JPY traders while the US housing data may offer extra direction.

Technical analysis

Tuesday’s Gravestone Doji candlestick below the 10-DMA level of 114.90 suggests the USD/JPY pullback towards an ascending support line from early October, near 114.15.