- USD/JPY rose to a daily high of 110.07 in early American session.
- 10-year US T-bond yield is up more than 2%.
- Wall Street’s main indexes are suffering heavy losses.
The USD/JPY pair continued to push higher in the early American session and reached a daily top of 110.07. However, the pair struggled to preserve its bullish momentum and was last seen trading at 109.95, where it was still up 0.25% on the day. On a weekly basis, the pair remains on track to close virtually unchanged for the fifth straight time.
The broad-based USD strength and rising US T-bond yields fueled USD/JPY upside on Friday. The US Dollar Index is currently trading at its strongest level since late August at 93.13 and the benchmark 10-year US T-bond yield is up 3% at 1.379%.
Nevertheless, the risk-averse market environment, as reflected by the sharp decline witnessed in Wall Street’s main indexes, is helping the JPY show some resilience against the USD. Currently, the Nasdaq Composite and the S&P 500 indexes are down 1% and 0.75%, respectively.
Earlier in the day, the data from the US revealed that the University of Michigan’s Consumer Sentiment Index improved modestly to 71 in September from 70.3 in August. This reading missed the market expectation of 72.2 but failed to trigger a noticeable market reaction.
The USD/JPY currency pair has traditionally had a close correlation with U.S. Treasuries. When interest rates head higher, Treasury bond prices go down, which lifts the U.S. dollar, strengthening USD/JPY prices.
A foreign exchange correlation is the connection between two currency pairs. There is a positive correlation when two pairs move in the same direction, a negative correlation when they move in opposite directions, and no correlation if the pairs move randomly with no detectable relationship.
You can trade on forex pair correlations by identifying which currency pairs have a positive or negative correlation to each other. In the conventional sense, you would open two of the same positions if the correlation was positive, or two opposing positions if the correlation was negative.
A good rule of thumb for traders new to the market is to focus on one or two currency pairs. Generally, traders will choose to trade the EUR/USD or USD/JPY because there is so much information and resources available about the underlying economies. Not surprisingly, these two pairs make up much of global daily volume.
The major currency pairs on the forex market are the EUR/USD, USD/JPY, GBP/USD, and USD/CHF. The four major currency pairs are some of the most actively traded pairs in the world, along with the so-called commodity currency pairs: USD/CAD, AUD/USD, and NZD/USD.
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