Daily Market Recap – USDJPY hits 4-year high

The U.S. dollar rose to its strongest level in nearly five years against the Japanese yen in the Asian session Monday morning in the wake of a jump in Treasury yields, with traders betting on an early Federal Reserve interest rate hike despite a spike in COVID-19, 1 million new cases in the United States.

The greenback rose as high as 115.815 yen for the first time since Jan. 11, 2017, while long-term Treasury yields jumped 12.5 basis points overnight to 1.6420 percent for the first time since Nov. 24.

Money markets have fully priced in a first U.S. rate hike by May, and two more by the end of 2022.

The dollar also rebounded against all the major currencies rejecting technical resistance or support.

As the surge in coronavirus cases caused by the Omicron variant continued to impact global travel and utilities and delayed the reopening of some U.S. schools after the vacations, investors remained optimistic that further containment measures could be avoided.

Yesterday, the U.S. Food and Drug Administration approved the third dose of Pfizer and BioNTech's COVID-19 vaccine for children ages 12 to 15 and shortened the time frame for all booster shots from six months to five months after the first two doses.

Signs that Omicron is highly contagious but causes less severe disease than variants such as Delta are leading to the sentiment that the health situation will become manageable, which has boosted stocks and bond yields and may dominate market sentiment through January.

As a result, the dollar-yen has broken through a resistance formed by the March 2017 high of 115.50. This breakout must now be confirmed at the close.

If so, the pair could continue in the coming weeks toward the 2016 high at 118.66. The 13- and 34-period moving averages are now pointing up and supporting this outlook.

 (Chart Source: Tradingview 04.01.2022)

A close below 115.50 would defer this scenario, which would be dropped below the polarity line at 114.30.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.