US Dollar Outlook: USD/JPY on Fire as Yields Soar Post-Powell

• USD/JPY price action trading at its strongest level in nine months at the 108.00-handle

• US Dollar bulls propelled the DXY Index sharply higher as the bond selloff accelerated

• Fed Chair Powell downplays the impact of surging yields on broader financial conditions

The US Dollar is flying high today with signs of strength across the board of FX peers. US Dollar gains were most notable against the Euro and Yen. USD/JPY soared over 90-pips on the session while EUR/USD plunged as Fed Chair Jerome Powell unleashed a surge in Treasury yields. The latest extension of the bond selloff sent the 10-year Treasury yield exploding past the 1.55% level, which further improved US interest rate differentials and energized US Dollar bulls.

Chart by @RichDvorakFX created using TradingView

On balance, the broader DXY Index spiked 0.75% to eclipse its 100-day simple moving average and upper Bollinger Band. Unsurprisingly, the recent acceleration in US Dollar buying pressure has corresponded with an upswing in both the MACD indicator and relative strength index. Nearside technical resistance for the DXY Index stands out around its 04 February swing high. Surmounting this obstacle could bring the 61.8% and 78.6% Fibonacci retracement levels of the November 2020 to January 2021 bearish leg into focus. Rejecting its year-to-date high might motivate US Dollar bears to set their sights on the 20-day simple moving average.

FX volatility has been heating up on the heels of recent bond market volatility. Interestingly, even despite today‘s move, USD/JPY overnight implied volatility of 5.4% is below its 20-day average reading of 5.7%. This suggests an implied range of a mere 62-pips. AUD/USD and NZD/USD are expected to be among the most active major currency pairs during Friday’s trading session judging by their respective overnight implied volatility readings of 10.3% and 14.6%. The upcoming release of monthly nonfarm payrolls data, due 05 March at 13:30 GMT, stands out as high-impact event risk facing the US Dollar. Learn more about how to trade the NFP report here.

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