The USDJPY pair has been moving higher in tandem with US10 year yields on a reaction to the last Fed statement on September 22. Jerome Powell stated that the employment target had been ‘all but met’ and that he expected tapering to be done by the middle of next year. The statement about inflation being transitory was also dropped, which has given the market the impression that the Fed is moving towards a more hawkish stance. This is what has been supporting the USDJPY as the USD gains on a more hawkish Fed outlook.
The obvious pair for taking advantage of this was the USDJPY as it tracks the US 10 year yields higher as flagged on Sep 24. The move into 112.00 was a good place to take near term profit, but the pair remains a buy on dips.
The main risk to this outlook would be if the NFP on Friday was a very weak print. Jerome Powell does not need to see an amazing jobs print, however, a very weak one will raise questions about the timescale for tapering. This, however, would open up the possibility of a long into gold. The key charts to be looking at for gold are the real yields and the dollar index. When real yields and the USD index are both moving in the same direction then we can expect the best movement from gold. Watch out for it.