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Talking Points:

- USD/JPY Rate Snaps 2018 Opening Range; November-Low on the Radar.

- USD/CAD[1] Rebound Mired by Growing Bets for BoC Rate-Hike.

DailyFX TableUSD/JPY

USD/JPY extends the decline from earlier this week even as U.S. Treasury yields push to fresh monthly highs, and the pair may continue to give back the rebound from late last year as it snaps the opening range for 2018.

After watching USD/JPY broadly track the U.S. 10-Year Treasury yield in 2017, the key dynamic appears to be unraveling, with the dollar-yen[2] exchange rate now at risk of testing the November-low (110.84) as it extends the series of lower highs & lows from earlier this week. Keep in mind, the recent pickup in market volatility is occurring ahead of the fresh updates to the U.S. Consumer Price Index (CPI), which is anticipated to show a slowdown in the headline reading, and the dollar stands at risk of facing a more bearish fate should the data print dampen the outlook for inflation.

In turn, downside targets remain on the radar for USD/JPY especially as the Federal Open Market Committee[3] (FOMC) is widely anticipated to retain the current policy at its next interest rate decision on January 31, and the pair may face a more meaningful correction over the coming months as the Bank of Japan (BoJ) appears to be approaching the end of its easing-cycle.

USD/JPY Daily Chart

USD/JPY Daily Chart

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  • The break of the descending triangle/monthly opening range raises the risk for a further decline in USD/JPY especially as the Relative Strength Index (RSI) continues to track the bearish formation carried over from the summer months.
  • Break/close below the 111.10 (61.8% expansion) to 111.60 (38.2% retracement) region opens up the November-low (110.84), with the next downside area of interest coming in around 109.40 (50% retracement) to 110.00 (78.6% expansion).

USD/CAD continues to retrace the sharp decline from the previous month as Canada Building Permits narrow 7.7% in November, but the recent rebound in the exchange rate may unravel ahead of the Bank of Canada’s (BoC) next meeting on January 17 amid growing expectations for a rate-hike.

The ongoing improvement in Canada’s labor market may encourage Governor Stephen Poloz and Co. to further normalize monetary policy in 2018 as ‘inflation has been slightly higher than anticipated and will continue to be boosted in the short term by temporary factors,’ and the central bank may prepare Canadian households and businesses for higher borrowing-costs as officials warn ‘higher interest rates will likely be required over time.’ With that said, the broader shift in USD/CAD behavior may continue to

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