The USD/JPY is going to be put to the test in the coming sessions. With yields on the rise following the FOMC minutes yesterday and stocks selling off as a response to higher rates, the USD/JPY will be put to the test in a big way.
Some traders argue that the USD/JPY rallies when yields increase. The other half would say that the JPY tends to strengthen should we see some "risk aversion." I think both groups of traders are right. But who will be "more right" if stocks go down as yields surge higher?
Technically, the USD/JPY pair has broken the critical 115.50 level and hit new trend highs at the 127% extension at 116.35. A break back below the 115.50 level would surely disappoint bulls and is bearish in the near-term.
In addition, the 161% extension of the December consolidation comes in at 117.39, which also coincides with a multi-year descending trend line. If the USD/JPY does surge higher, I would expect significant resistance. Good enough for a counter-trend USD/JPY short.
